Emerging market currencies have fallen to their lowest levels in 15 years, reports the FT this morning.
There are many reasons for this the commodity crunch and the tumbling Chinese stockmarket among them.
But lurking behind all of those is the decisions of a small group of people in another country altogether.
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The Federal Reserve is thinking of raising interest rates and that's having consequences across the globe
What will it take for the Fed to raise interest rates?
As Bloomberg points out, "this week's meeting of the Federal Open Market Committee is really about September".
That's when most people now expect the Fed to make its first move.
Of course, the Fed has been sitting on its hands for quite some time now. US monetary policy has been at emergency levels since 2009. We've seen a long bull market in stocks since then. The employment picture is improving, and has been for a long time. The US has long since left recession.
Regardless of what you think will happen in the future, or how hollow you might think this recovery is, this is not an emergency situation. If you accept the official data (or think it's anywhere near accurate) then rates should probably already be a good bit higher than they are today.
So you have to ask: what will it take to make the Fed raise rates?
The Fed technically cares most about two things: employment and inflation. Employment is picking up. And inflation while it's still low has been gradually ticking higher too.
There's more pressure on wages. Various large companies have been raising their minimum wages, presumably for staff attraction and retention reasons. That shows there is more competition for labour, and as we know, when there is more demand for something, its price tends to go up.
More to the point, the Fed knows that it needs to raise rates at some point. If we head into another recession, the Fed wouldn't be able to do anything to give the economy a jolt other than print more money.
And it doesn't want to be put into the position where it has to do that. Because if your only monetary policy options six years on from a nasty crash are to resort to quantitative easing, then that suggests that you've fallen into the very Japanification trap that you promised you could avoid. If nothing else, that's not terribly good for morale.
So at the very least, the Fed would like to get rates to a level from which it can start cutting again if and when the economy next turns down.
The Fed probably won't surprise markets this week
With oil prices falling again, inflation will be less of a worry. The strong dollar acts against inflation, too. And the upheaval in China and other emerging markets might just concern the Fed as well, although it can't pay too much explicit attention to this at the end of the day, it's not meant to be setting monetary policy for the entire world, even although in reality, to a great extent it is.
That said however, it might be too early to start showing weakness to the markets. We're over the worst in Europe (for now). The US market has had a poor year so far, but it's hardly collapsed. There's no sense of panic right now.
So in terms of the backdrop, this feels like a good time for the Fed to show its hawkish' side rather than giving the markets a reassuring pat on the head. That suggests we could see more emerging-market upheaval and more dollar strength.
Of course, second-guessing the actions of central banks is not the basis for planning your long-term investments. As I've noted before, the only sensible thing you can do is to make sure you have a diversified portfolio and that you invest in markets that offer decent value. At the moment, Europe and Japan look better value than the US on the developing side.
However, on the emerging-market side well, with more upheaval likely, there could be a lot of opportunities opening up in the near future. In the next issue of MoneyWeek magazine, David C Stevenson looks at what he considers to be one of the best-value emerging markets in the world, and the best ways to play it.
