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Could the Emerging Market Currency Crisis Bother US Investors?


Dec. 4 2020, Updated 10:53 a.m. ET

Currency crisis

There’s a crisis building in emerging market currencies. The Turkish lira, Iranian rial, and Indian rupee have fallen to an all-time low against the US dollar. The Russian ruble also fell to a two-year low against the US dollar. In Iran’s case, US sanctions and an overall economic slowdown took a toll on the currency. President Trump’s tweet about doubling the Section 232 tariffs on Turkish steel and aluminum products added fire to the already plunging Turkish lira.

India is an interesting case. The country is touted as the world’s fastest-growing major economy. However, India’s rupee has also come under pressure due to the country’s high current account deficit. The Chinese yuan has also depreciated against the US dollar.

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Weakness in emerging market currencies is also fueling the dollar’s rally. There are some obvious repercussions from the stronger US dollar. US companies with significant international exposure like Ford (F) are impacted negatively by the stronger US dollar. Ford and General Motors lowered their 2018 guidance during their second-quarter earnings call due to currency headwinds.

US equity markets have also corrected in the last few trading sessions. Due to the strong year-to-date performance of FAANG stocks like Amazon (AMZN), Alphabet (GOOG), and Netflix (NFLX), the PowerShares QQQ ETF (QQQ) is still up 16.9% for the year based on the closing prices on August 14.

Next, we’ll discuss how the Turkish crisis could impact US investors.


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