Pace of EM currency rout surprising, euro safe haven: ING

Chris Turner, head of Forex Strategy at ING believes that the rise in the US bond yields is the main reason for the big pullout from the emerging market currencies. However, he is surprised by the speed with which the EM currencies have sold off.

Also Read: India paying price for over-dependence on FII money: Dalton
In an interview to CNBC-TV18 he says that now euro is a safe haven currency despite having a 2 percent current account surplus of GDP. Below is the verbatim transcript of Chris Turner’s interview on CNBC-TV18 Q: Why are we seeing this big pullout from emerging market (EM) currencies?
A: There hasn't really been one major factor there. We have seen the US 10-year yield creep higher. It had moved to about 2.60-2.65 percent in May or June which triggered the first round of this EM selloff. Over the last week they have nudged up quite gently to about 2.80-2.85 percent. But I am surprised by the speed with which the EM currencies have sold off.
There have been some local stories like last week in Latin America and Mexico where gross domestic product (GDP) was very soft and looking globally there are greater fears about growth in EMs. But if you would have to pick one factor that would be steepening of the US-EU curve in the rise of 10-year yields. Q: Is money shifting from EMs to safe capital or the western markets and increasingly Europe given the recent GDP data pointing to Europe or the euro zone emerging out of a recession?
A: ING has been the strength of the euro over the last month or so. Until now euro is a safe haven currency, sure it is backed by a 2 percent current account surplus of GDP but that is generally what a safe haven currency requires in some of the markets where portfolio flows have died down and are left to be bounced around by trade flows and current account flows. In that environment, the euro is enjoying a slight bit but later in the year when portfolio flows pick up again, we cannot see an independently strong dollar across the board and not just against EM currencies.