Three extremely weak currencies to consider
Aug 29 (Reuters) -In the middle of a period where traders have raced to sell dollars, expecting a headlong rush to cut interest rates in the United States, three popularly traded currencies have dropped towards record lows, challenging the narrative about the U.S. currency.
The Indian rupee, Turkish lira and Brazilian real, which were sliding before traders turned on the dollar, have continued to fall during a period that the dollar index has dropped almost 6%. In this time futures traders have priced in a 2 percentage point reduction in the U.S. interest rate within the next 11 months.
Despite this drastic change, the dollar has continued to advance, steadily gaining versus currencies that are supported by interest rates already higher than those in the U.S.
The expected stimulus of a cycle of U.S. rate cuts has boosted Brazil's stock market to a record high this week, while Turkish stocks reached an all-time peak in July and Indian equities touched their best ever level at the start of August.
This extreme division that has seen the dollar plunge against less attractive assets and rise against those that offer much bigger returns is likely to result in a big reaction. Perhaps the real, rupee and lira are bargains set to soar when the U.S. easing cycle begins, or perhaps those selling short of dollars against currencies with similar or much lower interest rates than those in the United States will be squeezed.
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USD index, and USD vs BRL, TRY, INR https://tmsnrt.rs/3XlmMq4
(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)
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