Emerging market currencies face sell-off

Emerging markets have fared well this year, due to a combination of increased investor appetite for risk and strong fundamentals. Many emerging countries have also witnessed a rapid appreciation in their currencies, as foreigners pored money into direct and portfolio investments. As rates have risen in the developed world, however, many investors have begun to reevaluate the economics of such investments. In fact, the risk-return profile is changing to the extent that it may prove more efficient to invest money in lower-yielding, but safer American and European debt securities. The Financial Times reports:

“The market is only pricing in a 36 per cent chance of a rate rise in September…, so there is room for dollar upside, which would squeeze emerging markets.”
Source Forex blog

Commentary: USD driven by rate differentials

Over the past 6 months, the Euro and Pound Sterling have risen steadily in value against the USD. Labor and market reforms are forcing European companies to become more competitive. Hence, the economies of Britain and the EU are finally beginning to show signs of life. While economic fundamentals have certainly contributed to currency appreciation, they must take a back seat to interest rate differentials in any analysis of currency markets. Economists reason that interest rate differentials represent a leading indicator for foreigner’s willingness to continue financing the US current account deficit. That is, if US capital markets can continue to offer foreigners attractive returns, then they will continue to park their savings in the US.
In details from FOREX BLOG