Emerging FX Poised for Biggest Weekly Losses

Emerging market currencies were licking their wounds on Friday after another brutal week that saw higher US Treasury yields and a stronger dollar taking their toll, with hotspots Argentina and Turkey on track for a third week of hefty losses.

MSCI emerging market currency index has fallen more than 1% over the week–its biggest such decline since November 2016, Reuters reported.

Currencies of developing nations have been whacked in recent weeks by the dollar’s steady climb with the greenback perching near a five-month peak while US Treasury yields trading well above the psychologically significant 3% threshold.

Adding to the woes was softer data earlier in the week out of China and with investors closely eyeing the latest twist and turns in the standoff between Washington and Beijing over trade between the world’s top two economies.

“As soon as the dollar goes up, of course, emerging market investors shudder,” said Jan Dehn, head of research at Ashmore.

Argentina once again took center stage, with losses racked up early in the week putting the peso on track for a 5% tumble since last Friday–its third week of losses of such magnitude. Yet the currency stabilized somewhat on Thursday after the central bank declined for the second day in a row to support the peso, indicating its willingness to let the market find its own level under 25 to the dollar.

The peso hit a series of all-time lows earlier in May, forcing Buenos Aires to request a “high access stand-by arrangement” from the International Monetary Fund and the central bank to jack up interest rates to 40%.

Turkey’s lira flirted with yet another record low on Friday as investors waited to see whether Ankara’s central bank will take action to shore up the ailing currency with 10-year benchmark bond yields rising to 15%. The lira looked poised for a 3% weekly drop in its third week in the red.

Latin American currencies also suffered, with the Mexican peso shedding around 0.8% against the US dollar while Brazil’s real closed over 0.7% weaker.

And South Africa’s rand, Mexico’s peso and Russia’s ruble are all also on track for a week in the red.

Stock markets painted a similar somber picture, with MSCI’s emerging equity index treading water on the day but on track for a 1.7% weekly loss.