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Volatility Escalates As Emerging Markets Mull Over Interest Rates

By easy-forex (Jay Elliott-Purdy)Market OverviewJun 26, 2014 10:08
Volatility Escalates As Emerging Markets Mull Over Interest Rates
By easy-forex (Jay Elliott-Purdy)   |  Jun 26, 2014 10:08
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There are no significant swings within most major currency pairs, and so volatility levels remain quite low. Few would argue that a major reason is the traders’ shift of attention towards the World Cup in Brazil, as the interest is exponentially increasing now that there are few group stage games left and fans are eager to find out which national teams will qualify for the next stage.

On the other hand, emerging markets’ currencies and their central banks shifted their attention on interest rates as some of them employ higher rates in comparison to developed economic powers.

It looks as if emerging markets are less affected by the political developments and ongoing violence in Ukraine, Syria, and Iraq. The conflict between Ukrainian military forces and pro-Russian militants reached a critical level a few weeks ago, before ceasefire was initiated by Ukrainian President Petro Poroshenko.

The militants however are not ready to disarm until Ukrainian government troops leave the eastern part of the country, and it currently appears that the ceasefire came to an end following more acts of violence.

Syrian crisis appears to be escalating after Israeli forces attacked nine Syrian military targets, following the recent killing of a 15-year old boy at the nations’ borderline. The situation in Iraq is well out of control as the Sunni rebels are slowly taking control of an increasing number of cities in the northern part of the country and have recently captured Iraq’s main oil refinery.

Regardless of whether these conflicts might have a future effect on emerging markets’ currencies, central banks for some of them will have their meetings and could draw attention.

After its meeting on June 24, the Magyar Nemzti Bank (MNB) proceeded to another interest rate cut from 2.4% to 2.3% as expected by many. The Hungarian economy deflating by 0.1%, which is ages away from the central bank’s 3% target. The EUR/HUF is currently trading near 306.00 and if the rate remains at this level the interest rates are likely to remain low, with the possibility of more rate trims.

The Central Bank of the Republic of Turkey (CBRT) had a considerable rate increase in January from 4.5% to 10%, but during the last two meetings of the central bank there were decisions of trimming the rate back to lower levels. On Tuesday June 24 the CBRT reduced the rate from 9.5% to 8.75% after the Turkish government applied pressure towards the bank for further rate reductions to be larger than 0.5%.

Policymakers of the Czech National Bank (CNB) are due to have their meeting on Thursday June 26 at 11:00 GMT, but there is wide expectation by the markets that the central bank will stick to its current rate level of 0.05% in an effort to maintain the floor of 27.00 for the EUR/CZK.

On June 9 data released showed that inflation for the 12 months until May increased by 0.4% compared to 0.1% increase for the previous month, and these are evidence that the CNB is moving in the right direction towards economic recovery.

Even though there is no meeting for the National Bank of Poland (NBP), a scandal that emerged last week had an effect on the zloty when public media released alleged conversations and back room dealings between high-ranked government members and NBP executives.

As a result, the EUR/PLN rallied for three consecutive days last week, but now it appears to be moving towards the original level of 4.12.

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Volatility Escalates As Emerging Markets Mull Over Interest Rates

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Volatility Escalates As Emerging Markets Mull Over Interest Rates

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