It's murder out there in the currency and bond markets.
The Bank of Indonesia lifted interest rates on Thursday, following in the footsteps of Brazil and the Philippines, to keep hot money from fleeing back to the US. Istanbul is on course to blow all its government reserves on propping up the lira after failing to stem a haemorrhage of cash.
They are all suffering from the west's yo-yoing recovery and, especially in recent months, the likelihood of an interest rate rise in the US. Federal Reserve chief Ben Bernanke appeared to dampen the more hysterical predictions of an imminent rise on Wednesday night, after fuelling the debate in his previous note last month.
But his battle with the markets will be a long one. Most investors seem to believe that the US economy is recovering strongly and a rise next year will prove irresistible. Everyone wants the US economy to grow and buy their goods. But a rise in demand for the dollar and consequent fall in demand for emerging currencies could kill the global recovery and be self-defeating by sucking out investment. Bernanke is talking down US growth, but it may be too late for many emerging economies.
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