Hawkish Fed, Weak Yuan Signal More Trouble Ahead for Emerging Markets
- Markets have absorbed yuan weakness but investors remain wary
- Combination of Fed hikes, slowing China will pressure yuan
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If you thought the first half of the year was rocky for emerging market economies, brace for turbulence ahead with dollar strength and a weaker Chinese currency set to keep investors on edge.
The yuan has slid six percent against the dollar since June and analysts say if further losses materialize, accompanied by rising Treasury yields and greenback, that will be a volatile mix. Investors will be tempted to pull capital out of emerging economies across the board; policy makers around the region will be forced to raise rates in response. Already, India’s central bank governor Urjit Patel has warned of the risk of a brewing currency war.