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Emerging markets currencies are getting hammered across the board today on the back of the FOMC minutes. Many are touching multi-year or even all-time lows. Here are some examples of the dollar strengthening against some major EMG currencies:
Rumors persist of some very large emerging markets hedge funds taking significant losses, as Brazil’s 10-year government bond yield punches through 12%.
|Brazil 10y gov yield (source: Investing.com)|
This provides further confirmation that the Fed’s recent monetary stimulus effort and the artificially low dollar rates have been responsible for a great deal of capital flows into emerging markets. Now we are seeing a sharp and to some extent an uncontrolled reversal of these flows. And many of these nations’ central banks find themselves quite helpless in the face of this correction.
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