How QE’s potential unwind reveals the existence of the currency wars

By Sober Look

Emerging markets currencies are getting hammered across the board today on the back of the FOMC minutes. Many are touching multi-year or even all-time lows. Here are some examples of the dollar strengthening against some major EMG currencies:

Source: Investing.com

Rumors persist of some very large emerging markets hedge funds taking significant losses, as Brazil’s 10-year government bond yield punches through 12%.

Brazil 10y gov yield (source: Investing.com)

This provides further confirmation that the Fed’s recent monetary stimulus effort and the artificially low dollar rates have been responsible for a great deal of capital flows into emerging markets. Now we are seeing a sharp and to some extent an uncontrolled reversal of these flows. And many of these nations’ central banks find themselves quite helpless in the face of this correction.