EM currencies taking breather, for now

The Emerging Market currencies were able to appreciate notably. This was mainly due to improved sentiment on the global financial markets. The oil price rose notably and reached the highest level in about one month. The stock markets also recorded gains. 

The reaction of the FX market demonstrated once again how little the local aspects of a currency matter at present. While it makes sense that a rising oil price supports the ruble it should really put pressure on the lira, as Turkey depends on energy imports. As positive as the recovery is for anguished EM investors it should not be overestimated. 

"It may run a little further but is devoid of fundamental support. Following the recently disappointing labour market report speculation is gathering momentum that the Fed might even postpone the first rate step well into next year. The futures market is pricing in a rate hike in December by less than a half. If it turns out that the Fed will not be as hesitant after all sentiment could quickly change again", argues Commerzbank.