I touched on this yesterday and after some reflection it feels like a major driver in the USD strength.

A tremendous amount of long-term investments have flowed into emerging market bonds in the past two years. For investors borrowing from the developed world to invset this has generated positive carry and those taking the currency risk also benefitted from EM currency appreciation.

A massive rush to the exits is underway. It began in early September but is picking up steam.

In the month, there have been 20-30% moves in the currencies of Russia, Brazil, Poland, Czech Rep., and many others. The Turkish lira broke through the 2009 lows yesterday.

USD/RUB – most of the charts look something like this.

Many of the investments are difficult to liquidate so this could have a long way to run and will continue to underpin USD. The FX volatility and hot money flight could also destabilize EM growth.