Emerging Stocks and Currencies Fall After Fed and US GDP

Alfonso Esparaza Senior Currency Strategist, OANDA

OANDA senior currency strategist Alfonso Esparza maps out how a gauge of emerging-market currencies extended a thrashing to a record low following US economic data, which suggests a sooner rather than later US Fed rate hike.

A gauge of emerging-market currencies extended a rout to a record low led by the Russian ruble and stocks fell after US economic data fueled speculation the Federal Reserve will raise interest rates sooner than later.

South Africa's rand sank 1.3%, while the lira depreciated to its lowest level ever on a closing basis as Turkey's central bank said it was evaluating a move to a simplified single-rate policy. The ruble lost 1.6%. Samsung Electronics Co. sank to an eight-month low in Seoul, while China's Shanghai Composite Index slid 2.2%.

A gauge tracking 20 currencies slipped 0.5% at 1:46PM GMT in London. The MSCI Emerging Markets Index slid 0.6% to 894.86, set to extend July losses to 8%, the most since May 2012.

The US economy expanded at a faster pace in the second quarter, eking out a gain at the start of the year and illustrating gradual improvement consistent with the Federal Reserve's view.

Officials, considering when to start raising rates in 2015, concluded Wednesday the US is making progress.

"The rate hike is traditionally negative for emerging markets because it curbs the availability of credit and because it strengthens the dollar," Joseph Dayan, the head of markets at BCS Financial Group in London, said by e-mail. "A US rate hike this year is clearly being priced in. The only question is whether it will happen in September or in December."

By Alfonso Esparza,Senior Currency Strategist, OANDA