I've been reading a lot of news regarding how Fed's plan in cutting its MBS buyback program has negatively affected Emerging Markets currencies, e.g., Philippines and Indonesia.

However, I am not sure why this is so? Perhaps Foreign Investors in Emerging Markets are taking their money out? But why? I have investments in emerging markets and understanding this may inform my investing decisions.

  • How might this relate to your personal finance or investments? – Chris W. Rea Dec 3 '13 at 16:22
  • 1
    i have investments in emerging markets – Bruno Dec 3 '13 at 17:03

The current FED's spend is to encourage spends by putting in more liquidity, SOME of this funds [directly or indirectly] reach emerging markets and get invested in stocks ... so without these forex inflows, the Balance of Payments would be under pressure ... so these forex are artificially keeping the Exchange rate down. For example the USD vs INR rate was in the range of 1 USD to around INR 50 for nearly 4-5 years. In the period the inflation in India was around 10-15%, so ideally the rate should have slowly moved towards INR 60, however it took a news of FED cut-back to more the rates in the range of INR 65 before stabilizing to Rs 60

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