As investors continue to flock to the stability and strength of financial markets such as the United States and China, the emerging markets of other less stable economies are feeling the brunt. On Friday, interest rates in Argentina hit 40% as that nation’s central bank forced its third rate hike in just eight days. Prior to the string of hikes, interest rates were hovering at about 27.25%. National officials are executing the hikes as an attempt to stop the Argentine peso from falling more against the stronger US dollar. So far in 2018, the peso is down approximately 15% against the dollar. Argentina is especially vulnerable in this impending economic crisis because of its low rate of imports compared to its country’s amount of exports, known as an account deficit.
On the other side of the ocean, Turkey is also feeling the pain of large account deficit and sliding value of its national currency. The lira has dropped 11% against the US dollar this year alone, while Turkey’s stock market index is also down 11% in 2018. In addition to the account deficit, the threat of political instability, as well as high inflation, are contributing to the perilous economic situation.
Investors leaving these two countries are pouring their money into the more stable US markets due to the increasing bond yields and the strong US dollar. The dollar has boasted a 4 percent surge against other similar currencies since mid-April.