Emerging Market Currencies to Decline in 2010

As the market sentiment has shifted towards the end of this year’s trading session, emerging market currencies like the Brazilian real and the South African rand, which ranked among the top performers in currency markets, may witness a decline in 2010 versus wealthy nations’ currecies in process of economic recovery.
Since the U.S. economy has produced optimistic reports earlier this month, higher-yielding possibilities available in emerging markets are not as attractive as they used to be like in the first semester of 2009, when traders bet on a more resilient and fast paced recovery for nations less affected by the credit crunch like Brazil and South Korea. As the U.S. economic data improves, the Federal Reserve is likely to lift stimulus and raise interest rates, causing a return of capital to North America, which was invested in emerging markets to protect traders’ portfolios from further slumps in the worst moments of the crisis, earlier this year.
High-yielding currencies like the Brazilian Real and the South African rand are likely to pare some of this year gains versus the dollar during the following months, as well as some Eastern European currencies like the Hungarian forint and the Polish zloty, as banking sector concerns emerge in Europe, likely to affect more fragile economies in the region first.
USD/BRL traded at 1.7820 as of 21:42 GMT from an opening rate of 1.7805 today. USD/HUF closed in Budapest at 191.65 today, after trading at levels as high as 177.05 in late November.

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