Losses in the Chinese yuan and euro have increased in recent months, and that is worsening the outlook for emerging market currencies in Asia and Europe.
The fall of the yuan and the euro generates losses in emerging currencies. Many analysts maintain that both currencies generated “monetary anchors” for their weaker peers within the continent, a situation that has worsened in recent times.
He yuan was affected by several situations, on the one hand, the strength of the dollarand on the other, the threat of higher tariffs from the United States. Furthermore, China’s stimulus measures disappointed the international market, describing them as insufficient.
The euromeanwhile, was influenced by similar phenomena, on November 22, the euro fell to lows that it had not seen since the race towards parity in 2022. Neuberger Berman experts considered that “the euro could be heading towards parity, but this process could take longer than expected and be a volatile path.”
The dollar appreciated the last time Donald Trump was elected president, and it appreciated again, by 11%, when he imposed tariffs on China. According to Edmond de Rothschild AM, the pessimism surrounding the eurozone is nothing new, but The differential in economic prospects between the United States and Europe reached a new level after the election of Donald Trump.
A weakening of the yuan or euro puts downward pressure on the currencies of their export-dependent neighbors, and can often be welcomed, as it helps keep their goods competitive.
According to analysts, If the yuan depreciates beyond 7.50 per dollar, the Reserve Bank of India may let the rupee weaken to keep the yuan-rupee cross stablesaid Wim Vandenhoeck, a senior portfolio manager at Invesco Ltd. in New York. The prospect of increased US tariffs will further weigh on the yuan and euro and their emerging market counterparts.
“The euro zone is particularly affected by trade uncertainty and this presents a difficult environment for the CEEC economies and currencies”said Kamakshya Trivedi, head of global currencies and rates at the bank in London, who also said: “We think it will be difficult for low-yielding Asian currencies to avoid the spillover effects of Chinese yuan weakness that we expect.”
Source: Ambito
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