Financial markets across the emerging world have rallied in the wake of the Fed’s decision to delay QE tapering, easing concerns that several EMs were on the cusp of currency crises. As it happens, these fears were probably overdone. It’s worth noting that EM currencies had already rallied ahead of the Fed meeting as perceptions that the summer sell-off had gone too far had started to build. And while the trend in most EMs over the next year or so is likely to be towards renewed dollar strength (and local currency weakness), this won’t pose the same risks to balance sheets as it has done in the past. EM growth is likely to remain lacklustre, but it’s not the fault of the Fed.
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