The strong dollar is hurting the world economy
Emerging markets, such as South Korea, Brazil or India, are risk-takers to invest in, but often grow faster than developed nations such as Germany or the United States. They also tend to be export-driven and often linked to price developments on goods.
It will be difficult for other emerging markets to step in and help avoid a global recession as long as the US dollar remains strong: Emerging economies tend to borrow in dollars. These countries are uniquely vulnerable to a strong greenback, which can make debt more expensive.
"Emerging markets may help" save the world "in this downturn, but this requires a weaker US dollar and thus a much more skilled Fed," Hauner said.
The Federal Reserve meets next week, and the chances of a further quarter-point cut are above 90%, according to the CME FedWatch Tool. Whether this will be enough to knock dollars remains to be seen. Currencies are often weakened during periods of looser monetary policy.
The frequently cited ICE US Dollar Index, which measures the currency against six rivals, is actually up 1.6% this year. But a look at specific emerging currencies shows another picture.
The dollar is up 1.9% against India's rupee, 4.1% against Brazil's real, and 5.5% against the South Korean won since the start of the year – to a large extent due to the trade war.
Aggravating the case, emerging economies are largely borrowing in dollars, while their largest customers are largely paying in euros, Hauner said. So these countries are also uniquely exposed to the exchange rate in euros. This year, the shared European currency has fallen 3.2% against the greenback.
