Kevin Muir Explains brilliantly in this post about how we reached here and concludes by saying….There is only so much pain that the global economy can take from tighter Federal Reserve policy. The American dollar is still the world’s reserve currency and it’s clear that the first participant without a place to sit in this game of musical chairs is emerging markets. The next time the music stops it might be an asset class that hits much closer to home and causes Powell & Co. to re-evaluate policy.
When the Fed does in fact slow down the tightening, buy EM hand-over-fist. It’s cheap. But someone tell them to stop borrowing in another currency. When will they ever learn?