Fed Funds Futures suggest the likelihood is that Jerome Powell, chair of the US Federal Reserve, will cut interest rates later this month, for a third time this year.
The central bank's U-turn in January, from promising to toughen restrictions on growth to worrying about a slowing economy, reversed the position on rates.
Yet renewed monetary stimulus has failed to shift the greenback off the appreciatory path it has been on since early 2018, much to the frustration of President Donald Trump and investors in emerging (EM) and frontier (FM) markets.
Returns from investing in EMs and FMs tend to correlate negatively with the dollar. Some of this is because it increases the debt burden for countries issuing dollar-denominated sovereign bonds, while commodity prices tend to move inversely with the dollar.
US-based investors also tend to repatriate funds when they perceive that the dollar will strengthen.
Strong EM signs
It is easy to forget that EM stocks performed very well in the four or so years following the nadir of the Global Financial Crisis (GFC).
The BRIC economies bounced back, while the likes of Poland and Mexico were also looking strong and in the frontier space, plenty of economies across Sub-Saharan Africa were attracting waves of capital from global and regional multinationals.
M&A activity was rife and, for consumer companies in particular, having strong EM exposure was perceived as a competitive advantage that was reflected in valuations.
A number of EM sovereigns took advantage of the peak quantitative easing years following the crisis to raise capital abroad.
High yielding fixed income paid out in dollars was attractive at a time when interest rates around the developed world were low.
A dollar invested in the MSCI EM index on 31 December 2008 would have generated a higher total return than the US-dominated MSCI World index, up until near the end of 2013.
Funds such as Genesis Emerging Markets and Templeton Emerging Markets (TEMIT) did particularly well over the five years ending 31 December 2013, more than doubling in net asset value (NAV) terms.
Crucially, the dollar's performance was relatively muted over this early post-crisis period, while commodity prices rebounded with gusto.
The landscape began to change in spring 2013 when then-Fed chairman Ben Bernanke discussed plans to reduce quantitative easing (QE), leading to the ‘taper tantrum' that engulfed markets.
By the end of 2014, the oil price had collapsed and the dollar had risen sharply. EM and FM were no longer attractive.
Over the five years ending 31 December 2018, only two global emerging investment trusts, JPMorgan Emerging Markets and TEMIT, beat the MSCI EM index in NAV terms and the returns on that index were less than half of those on the S&P 500.
It might have been reasonable to speculate that the Fed's policy shift earlier this year would lead to some depreciation in the dollar.
Slowing global growth, geopolitical tensions and trade wars are driving up demand for safe-haven assets.
Gold has risen sharply this year and the dollar's standing as the global reserve currency, as well as the US's ongoing economic strength, has so far served to increase its attractiveness.
Compared to the most recent boom periods for EM and FM assets, the US seems to be in a stronger relative position economically, certainly against other major developed economies.
Compared to the EM boom up until 2014, the fundamentals are not as strong today.
In July, the International Monetary Fund (IMF) slashed its forecast for emerging market growth to just 4.1% for the calendar year 2019, 0.3 points below its April estimate and the lowest figure since the height of the GFC in 2009.
The median share price increase in the global emerging market sector of the UK-listed closed-end funds universe, which includes 16 funds with EM and/or FM mandates, has underperformed its global sector peers by 8.8% this year.
Year to date, returns on US stocks are well ahead of EM. These things do move in cycles, however.
At some point, Trump's longed-for dollar weakness might materialise.
With trusts such as Aberdeen Emerging Markets and TEMIT trading on double-digit discounts, a change in sentiment could deliver both NAV outperformance and discount narrowing.
Shonil Chande is an analyst at QuotedData