Gabriel Burin and Indradip Gosh by Vuyani Ghosh

JOHANNESBURG/BENGALURU/BUENOS AIRES (Reuters) – Emerging market currencies will struggle to make modest gains next year as the U.S. Federal Reserve turns more hawkish, squeezing interest rate differentials, amid likely unimpressive growth from world No. A Reuters poll showed that China was the 2nd largest economy.

In the next twelve months, the South African rand (South African rand), Turkish lira (Turkish lira) and Thai baht will be beaten down currencies. They are likely to rise by just a fraction of the amount they lost over the last year, at 2.1% to 15.50/$. 15.0% to 11.71/$. 3.3% and 32.75/$.

According to the Nov. 29,-Dec. 2, survey, Russian rouble will do well, increasing 3.6% at 71.10/$. This is after an initial dip of 0.2% this year. However, there are few positive signs for emerging FX.

As more research is done to determine if the Omicron coronavirus version can be evaded vaccine protection, and what severe symptoms it may cause, emerging market sentiment will likely reflect this new Omicron variant.

Citi’s Dirk Willer notes that “our forecasts assume the new variant won’t cause a repeat of the 2020 outcomes.” However, we have been quite negative on EM in the past and this news stream skews our risk to more negativity.”

Emerging FX will face a major challenge in 2022, however. This is due to interest rate differentials driven by the most powerful central bank on the planet as they prepare for tighter policies.

Federal Reserve Chair Jerome Powell announced Tuesday that U.S. central bankers would discuss whether to suspend their bond purchases earlier than expected. The decision will result in a sharp rise in Treasury yields for shorter periods.

Citi stated that the U.S. monetary policy is driving capital flows to emerging market markets, but China drives growth in EM. Both are bad news for next year.

After initial pandemic lockdowns in 2011, growth in emerging markets economies has rebounded for many countries, although it will likely slow down next year due to lower Chinese consumption than previous years.

After gaining 2.5% this year, the, which is tightly controlled by Chinese authorities was expected to fall 1.5% against the greenback in the next year. The economy is expected to expand at a slower pace than 2021.

Alvaro Vivanco of Natwest’s ESG macro-EM strategy stated, “The bottom line is and our main message that more sustained and sustainable EM growth will need to bring back portfolio flows to support local assets across all boards,”.

We argue against this background for a defensive stance on EM currencies via a few directional tradings while being very selective about our longs.

The new year will bring uncertainty to Mexico’s carry-trade appeal. Brazil’s real, however, is expected to see some relief after suffering a decline in the second half of 2021.

Analysts wrote that the BRL would not strengthen significantly due to “political and fiduciary uncertainties” on the domestic side, as well as the normalization in U.S. money policy. Banco Santander (MC:) Brasil.

Some analysts are now questioning the decisions of President Andres Manual Lopez Obrador to appoint a new head at Mexico’s central banking. The reason is that domestic inflation has continued to exceed expectations and this affects Mexico’s outlook.