Investing.com - Emerging market currencies such as the Turkish lira and the South African rand fell to multi-month lows against the broadly stronger dollar on Wednesday amid growing expectations for an early hike in U.S. interest rates.
USD/TRY touched highs of 2.2132, the most since March 25 and was last up 0.28% to 2.2024.
Demand for the dollar continued to be underpinned by the view that the Federal Reserve is moving closer to raising interest rates after recent data indicated that the economic recovery is gaining momentum.
A study by the San Francisco Fed published on Monday indicated that central bank officials see rates rising earlier than markets expect.
Investors shrugged off last week’s disappointing U.S. nonfarm payrolls report as they began to turn their attention to the outcome of next week’s Fed policy meeting.
The Fed is expected to cut its asset purchase program by another $10 billion next Wednesday, which would keep it on track for winding up the program in October, and to start raising interest rates sometime in mid-2015.
Fed Chair Janet Yellen was to hold a press conference following the meeting.
Minutes from the Fed's July meeting indicated that the central bank was shifting its monetary policy stance towards raising rates from record lows.
The US Dollar Index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.15% to 84.39, not far from Tuesday’s 14-month highs of 84.65.
The lira came under pressure earlier Wednesday after official data showed that Turkey’s economy grew 2.1% year-over-year in the second quarter, falling short of expectations for an expansion of 2.8% and slowing from 4.3% in the first three months of the year.
The lackluster data added to pressure on the country’s central bank to cut interest rates if growth continues to slow.
Meanwhile USD/ZAR touched highs of 11.0161, the most since February 23 before paring back some of those gains to trade at 10.9663, 0.42% higher for the day.
Turkey and South Africa are among the group of ‘Fragile Five’ emerging market economies. The phrase was coined by Morgan Stanly in August 2013 to describe economies which are particularly at risk from a hike in U.S. interest rates, due to their dependence on foreign investment to fund current-account deficits.