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Let's talk about emerging market currencies, which are under a lot of pressure at the moment. I suspect what we are seeing is what you could call a Powell paroxysm. Long word, but its the best piece of alliteration I could come up with. Now, both of these lines show you the JPMorgan Emerging Market Foreign Exchange Index. It shows you how a basket of current emerging currencies have done compared to the dollar. Both start at 100 at the beginning of the year. This green line is for this year so far, 2018. And the red line is for 2013.
Now, the reason we've chosen 2013 is because back then in May, Ben Bernanke, then the chairman of the Federal Reserve, started talking about the possibility of tapering off the QE bonds purchases the Fed was making to keep US bond yields low. And as a result of that, we had what came to be known as the taper tantrum.
You saw money exit the emerging markets and go to the US right the way through that summer, getting to a position where people were deeply alarmed, even with the Fed not doing anything, just talking about tapering. Now, come September of that year, you have the FOMC at last meets and decides, to everyone's great surprise, not to start tapering off QE right then. You then see the emerging market currencies stabilise quite significantly. And that means that the Fed can finally start tapering there in December, which happens largely without incident.
Now, what have we seen this year? Now, obviously, back there and there and there, and seemingly every few months, we've had new announcements of tariffs, a steady escalating programme which puts pressure on emerging markets. Plainly, emerging markets are seen as having benefited more than the developed world from globalisation and trade. Perhaps also more significantly back in March and again in June you've seen the Federal Reserve raise rates, and you've also seen the Fed, which is under new leadership from Jay Powell, making it fairly clear they intend to do so again in September and December.
That has been putting pressure on the emerging markets' currencies once more. Turkey plainly has its own very specific problem, which is why you've seen a very sharp drop recently, but all the other countries that were most affected five years ago - India, Indonesia, Brazil, South Africa - are lower than they were then, and they have all fallen by about the same amount as they had back in that taper tantrum year of 2013.
If Turkey cannot resolve its crisis, plainly things will get scary. But even if it can, we need to see what happens when the Fed meets in September and again in December. Will it, as Jay Powell has said, be prepared to push ahead, believing that the impact of US monetary policy is overrated? Will it be prepared to push further ahead, even if emerging market currencies have continued to fall?