Five key things from the USA rate hike

The Dow Jones pan-European Stoxx 600 index rose 0.36 percent.

There is little consensus among analysts about how markets may react if the rate hike goes through as planned.

Citi, the FX market’s single biggest player and hedge funds’ partner of choice, say that positioning in the dollar against the euro is all but flat after a clearout over the past fortnight. Speaking before Wednesday’s announcement from the Fed, he said: “It’s like boiling a frog: it’s slowly but increasingly turning the heat on the EM assets”.

Investors interpreted the move as a sign of confidence in the world’s largest economy, and added to positions across global stock markets.

Forex Time Research Analyst Lukwan Otunuga said erratic movements continued to affect the currency markets as eager investors made the most of the incredible levels of volatility in the hope of being on the right side of one of the most anticipated financial events of 2015. MSCI’s broadest emerging market index is down 19 percent this year.

Simnegar is one of many managers who expect the Fed’s initial rate hike to only have a minimal effect on emerging markets as the increase has been expected for several months and priced into markets, shifting focus to how emerging market corporates fare after subsequent rate hikes.

While emerging market currencies may start a “counter-trend rally” after the Fed’s first rate increase, the declines may resume subsequently, “given that both China and the Fed are likely to remain significant overhangs”, the strategists wrote. “The dollar will continue to gain support, particularly against commodity currencies, Asian emerging-market currencies and the euro”.

For sure, the fact that the Fed rate move has been well telegraphed has led some of the problems for emerging markets to surface already-meaning things may not get much worse in the short-term.

The dollar fell back from a near one-week high versus a basket of major currencies on Wednesday, with losses limited in the countdown to an expected hike in U.S. interest rates later in the day.

In a recent report, the International Monetary Fund (IMF) lowered its growth forecast for developing nations to 4 percent – the slowest since 2009.

There is far less danger after that of an accelerated capital flight from emerging markets, Choyleva said.

In such a scenario, a rate hike in the US might very well build further pressure on indebted companies and economies.

Lending is starting to dry up.

The euro edged up 0.1 percent to $1.0941.

“The challenge will be higher for quasi-sovereign and corporate issuers that have to roll over debt as their funding costs will be substantially higher”, said Greg Saichin, the chief investment officer for emerging-market fixed-income at Allianz Global Investors Europe GmbH.