Stephen L Jen and Joana Freire at SLJ Macro Partners warn that the dollar appreciation phase is likely to be closer to its beginning than to its end, thus storing up future pressures for EMs with weak currencies and hefty US dollar debts.
“One gets a hangover only after (s)he stops drinking. In 2015, EM countries are in high risk of experiencing a bad case of QE hangover,” Jen and Freire wrote in a report.
“This is bad news for many EM currencies, in light of the massive cumulative capital inflows EM countries have received in the past decade,” they added. ” The size of these foreign liability positions, however, is very worrying, and this was indeed the fear of the EM central banks when the Fed launched its QE campaigns.”