Brazil Leads Emerging Markets Forex Rallies After US Fed Stimulus Surprise

The US Federal Reserve's shocking decision to continue purchasing assets worth $85bn a month boosted emerging market currencies, most of which have suffered their worst declines in around two years amid fears the stimulus was to be tapered in September.

Emerging market economies, battling higher volatility in capital flows and exchange rates, are struggling to handle a capital exodus as US interest rates rose ahead of an expected cutback in the Fed's bond-buying stimulus programme.

On 18 September, the world's most powerful central bank defied market consensus and decided against reducing its massive monthly asset buys, as the current pace of economic growth in the US did not justify tapering monetary stimulus.

In addition, Fed Chairman Ben Bernanke refused to clarify whether the Fed would taper its bond purchases at all this year. Instead, he asserted that the programme was "not on a preset course."

The news provided market players with some relief, while propping up the value of currencies in India, Turkey, Thailand, Malaysia, the Philippines, Indonesia, South Africa and Brazil.

In Mumbai, the Indian rupee, the second-worst performing Asian currency, jumped by about 2.8% on 19 September to 61.66/67 to the dollar, an over one-month high. The currency was trading at 61.92 at 11:11am BST.

In Istanbul, the Turkish lira shot up about 3% in early trade on 19 September and was trading at 1.95 to the dollar at 11:10 am BST.

In Bangkok, the Thai baht surged 2.2% and finished at 30.97 a dollar on 19 September, the highest increase in almost seven years.

In Kuala Lumpur, the Malaysian ringgit traded at a three-month high on 19 September and finished at 3.15 to the dollar.

In Makati, the Philippine peso gained about 1.1% and ended at 43.05 per dollar on 19 September, its highest in over ten weeks.

In Jakarta, the Indonesian rupiah, the worst performing Asian currency, jumped 1.7% to 11,281 per dollar on 19 September in Jakarta and finished at 10,847.

In Johannesburg, the South African rand inched up 0.4% to 9.5484 on 18 September, its highest since 24 May.

In Sao Paulo, Brazil's real surged 3.2% on 18 September, its strongest since late June, and finished at 2.1860 to the US dollar.

Market players had expected the Fed to start paring back its bond-buying programme after the September meeting of its policymakers. Financial data showed that the world's leading economy was improving, suggesting that it was ready for a monetary stimulus cutback.

Since late 2008, the Fed has more than tripled the size of its balance sheet to around $3.6tn through three massive rounds of bond-buying, designed to hold down longer-term borrowing costs.

The central bank's moves stimulated the US economy and global markets in the years following the financial crisis.

The US economy expanded 1.7% in the second-quarter, beating expectations of a 1% expansion. It logged a 1.1% growth rate in the first quarter.