Emerging currencies decline

The decline of the Icelandic krona by 4.6 percent in relation to the US dollar on Tuesday sent a number of emerging and high-yield currencies down on Wednesday morning as investors reacted to the krona’s decline. Tuesday’s drop in the krona led Fitch to lower Iceland’s country rating to “negative” from “stable” due to its current account deficit and its rising external debt. This downgrade sent the krona down another 3.4 percent on Wednesday to IKr68.26 to the dollar, a 15-month low.

In response to the krona’s activity, the South African rand dropped 1.3 percent to R6.106 versus the US dollar, while the Turkish lira fell 1.3 percent versus the dollar as well, to TL1.3325. In addition, the Indonesian rupiah dropped 1 percent against the dollar to Rp9,350 and the Brazilian real fell 1.9 percent versus the dollar. Meanwhile, the Polish zloty declined 0.5 percent to 3.8094 zlotys to the euro, and the Slovak koruna fell 0.3 percent to SK37.418 against the euro.

At least one analyst said that the sell-offs were spurred by falling global liquidity as interest rates go up, but that the declines would be contained.

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