Fed rate decision: Emerging markets caught in the crossfire
- Take a look at our dedicated rate hike page for other scenarios
This is the worst-case scenario for risk assets with strong outflows from emerging markets equities and bonds as investors move to reprice higher yields in the US.
The market is still only pricing two hikes from now through to the end of 2017, the Fed has three according to the dot plots (including December 2016).
A hawkish hike would force the market to adjust expectations. The high dollar debt burden will pressure emerging-market currencies and risk assets will face selling pressure similar to those experienced in the second half of 2015.
- DXY UP: buy DXY Index targeting 105.
- Buy USD/emerging markets:
- Buy USDKRW 1-month at market target, 1250.
- Buy USDMYR 1-month at market, target 4.80.
— Edited by Adam Courtenay
Editor's note: Please look at our dedicated rate-hike page for other scenarios that could result from the December meeting of the Federal Open Market Committee.
Non-independent investment research disclaimer applies. Read more