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17 Jun 2013
Flash: EM currencies continue to depreciate – Goldman Sachs
FXstreet.com (New York) - Markets have become less pessimistic on the growth prospects of G3 economies.
Consequently, G3 yields have drifted higher and curves have steepened. According to the Economics Research Team at Goldman Sachs, “As this shift to higher G3 rates extends in the years ahead, emerging economies could find themselves wrong-footed from a macro perspective.”
Liquidity in abundant supply
Since the end of the crisis, EMs have relied on an ample supply of liquidity from G3 central banks to finance an expansion of domestically oriented sectors in their economies. While we think this was an appropriate policy for some, for others it has led to a build-up of significant imbalances. “Therefore, a number of EM currencies are likely to come under depreciation pressure in the years ahead, triggered by tighter G3 monetary conditions and propagated by local macroeconomic drivers.” the team adds.
Consequently, G3 yields have drifted higher and curves have steepened. According to the Economics Research Team at Goldman Sachs, “As this shift to higher G3 rates extends in the years ahead, emerging economies could find themselves wrong-footed from a macro perspective.”
Liquidity in abundant supply
Since the end of the crisis, EMs have relied on an ample supply of liquidity from G3 central banks to finance an expansion of domestically oriented sectors in their economies. While we think this was an appropriate policy for some, for others it has led to a build-up of significant imbalances. “Therefore, a number of EM currencies are likely to come under depreciation pressure in the years ahead, triggered by tighter G3 monetary conditions and propagated by local macroeconomic drivers.” the team adds.