Emerging Market Currencies Feel the Pinch as Euro-Zone Debt Crisis Takes Hold

Emerging market currencies are being hit hard by the jitters of global financial markets, with currencies and debt weakening in the face of an ongoing euro zone sovereign debt crisis.

Concerns about the euro zone have resulted in drops across the board for the currencies of many less developed nations. Amongst others, the Hungarian forint, South African rand, Romanian leu, and Russian rouble have all seen drops against their developed market counterparts.

In some countries central banks have intervened to support their currencies. Poland’s central bank stepped in to support its currency, the zloty, and with good results: unlike other east European currencies, the zloty actually made gains against the euro. As in Poland, central banks in Romania and Russia have intervened to rescue the leu and rouble respectively.

Generally though, emerging currencies face a rather doom-laden scenario. The Hungarian forint declined massively against developed currencies, with the euro jumping about 1.5% against the forint to HUF297.82. Chile’s peso dove more than 1% against the dollar, the Mexican peso dipped about 0.8%, and the South African rand dropped 1.6%.

Meanwhile, Greece reported overnight that it would fall short of budget targets imposed by the International Monetary Fund, European Union and the European Central Bank as part of conditions for its bailout.

Guillaume Salomon, emerging market strategist at Societe Generale, summed the mood up:

“It’s not looking very good [for emerging markets]. There are a number of concerns, and we’re back to the same old game [the euro-zone sovereign debt crisis] here.”

Furthermore, a big drop in U.S. stocks and commodities caused mass selling of emerging market currencies.