The unexpected outcome of the UK referendum, in which the residents voted to leave the EU, contributed to the fall of the pound sterling by 6.71%, while the euro lost 2.45% since April. Amid the global turmoil and uncertainty regarding the timing of further Fed rate increase, the yen was higher against the US dollar by 8.76%, as investors bought it as a safe haven. The dollar index rose by only 1.3% over the past three months.
From the beginning of the year, the prospects for emerging market currencies (emerging markets, EM) improved as a whole. The Russian ruble has strengthened against the dollar by 14.6% from January 2016. The Brazilian real rose 23.4% in the first half of 2016, and the South African Rand by 5.7%. Chinese Yuan fell only 2.5%, while the Indian rupee has lost only 1.8% in January-June 2016.
Rajkumar Ray, the famous Indian financial analyst, columnist for the Indian newspaper The Financial Express, explains this phenomenon by improved growth prospects for the emerging markets.
"The behavior of currencies around the world once again confirms that the markets and investors still believe in the basic economic fundamentals rather than speculative movements, - he writes. – The rising oil prices improve the state of the economy exporters, such as Russia and Brazil, even if it is not beneficial for importers, such as India. Rising oil prices also raise global demand for risky assets which attracts foreign investments to the markets of developing countries and contributes to the strengthening of their currencies. India, for example, is a witness to a strong inflow of portfolio investments. The main reason is that the growth of India's GDP (7.6% YTD) is the highest among the world's largest economies."
Nevertheless, we should not forget about the instability of the world economy, including the US and China. Also, Brexit creates for the EU integrity risks that slow down investment and have a negative impact on the markets, although this scenario cannot be considered a strong fundamental at the moment, warns Mark Bradford analyst at FG BCS.
The growth of the Brazilian real and the Russian ruble has occurred amid rising commodity prices, favorable for the economy of the two major exporters. At the same time, for such a major importer of raw materials, such as India, the rise in oil prices, in contrast, is a factor of pressure. China and India are deliberately trying to keep their currencies competitive, to raise exports and, consequently, to maintain high rates of GDP growth.