EM FX is vulnerable to further pressure in the short term. Nonetheless, economists at TD Securities see scope for some recovery in 2023.

Deterioration in external positions to limit gains

“While near-term pressures on EM FX will likely persist, we see scope for some recovery next year. We see particularly strong recoveries in BRL, ZAR, PLN and HUF.”

“Our expectation that the USD will lose ground next year will bode well for EM FX, helping to reverse the downward pressure that has been in place over recent months. Higher real rates will also provide some support to many EM FX.” 

“However, we are cognisant of a deterioration in external positions across EM suggesting that EM FX will find it difficult to recover significantly even against the background of a softer USD profile.”