EM currencies gain as growth returns, but boom unlikely
Emerging market currencies tend to move with the economic cycle. Consequently, after losing ground in 2020, they have recently shown signs of recovery. While growth should support EM currencies during 2021, other currently positive factors may wane. We therefore think an EM currency boom is unlikely unless world growth and inflation surprise markedly to the upside.
What you will learn from this report:
- An index of EM currencies fell 5% in 2020, but a deeper fall might have been expected given the slump in world GDP.
- The pro-cyclical nature of EM currencies appears to be behind notable gains by some in recent months.
- Our EM FX barometer is currently positive for EM currencies.
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