Fears of contagion or a widespread sell-off in Asian currencies were renewed as the Sri Lankan rupee fell to a more than one-year low of 133.60 against the dollar on Tuesday. This was due to importer demand for the greenback amid renewed selling of government bonds by foreign investors. Further turbulence following the big sell-offs in the Indonesian rupiah and Indian rupee is expected as markets continue to adjust to the expectation of a tapering of the US Federal Reserve's QE program. As cheap money created by QE exits the region, the countries likely to be hurt are those most vulnerable to the risk of external default. On this basis, Indonesia and India are the most exposed, followed by Malaysia and Thailand - suggesting that pressure on the ringgit and baht, and on the countries' respective bond markets, is imminent.
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