Dollar recovery only part of the story for EM FX

After a relatively good run, we think EM currencies will generally depreciate over the coming quarters as the US dollar recovers. Heavily managed currencies in high-inflation economies like the Turkish lira and Argentine peso are likely to fall furthest (perhaps 20–25% by the end of next year). Weak balance sheets and rising political risk could weigh on currencies in Hungary, Brazil, and Colombia. At the other end of the spectrum, Asian currencies for the most part look undervalued and should hold up better.