Yield-hungry investors pouring money into emerging markets and shunning the dollar will not be deterred by a warning from finance leaders at the weekend about the danger of inflation in the developing world.
With interest rates in many advanced economies including the United States at record lows, global investors have bid up assets in countries such as China and Brazil, which boast much more rapid growth than the West and offer higher returns.
The US dollar has shed more than 5 percent this year against major currencies. It has even lost nearly as much against the tightly managed Chinese yuan and Brazil's real.
The wave of incoming money has led to high inflation in emerging markets, prompting countries such as Brazil to use taxes and other capital controls to temper the inflow.
International Monetary fund members at their semi-annual meeting this weekend warned of the risk of inflation in emerging markets and debated how best to temper it.
But nothing will change overnight.
"Investors will get to work (on Monday) and ask themselves, 'are there still excess returns to be made by going into emerging markets?'" said Steven Englander, head of G10 FX strategy at Citigroup. "Broadly speaking, the answer to that is 'yes'."
The Group of 20 leading advanced and developing countries, at a meeting ahead of the IMF gathering, agreed on a plan to weigh the debt levels and trade balances of seven major nations to find policies aimed at fixing uneven global growth.
That could put more pressure on the United States to trim its massive budget deficit and push other economies such as China to allow faster currency appreciation, which would help temper rising price pressures.
Englander said the G20 deal yields "nothing positive for the dollar" and reinforces the notion that emerging market currencies will keep rising to offset inflation and rebalance the world economy.
"Markets are likely to see risk of more emerging market appreciation against G10 currencies," he said, which will keep "hot money piling in".
China, which reported another quarter of sizzling growth this week and further acceleration in consumer prices, has let the yuan rise nearly 5 percent against the dollar since mid-2010. Premier Hu Jintao said last week that Beijing should consider more currency flexibility to combat inflation.
Brazil's real neared a two-year high against the dollar last week despite authorities' efforts to limit incoming money. Without taxes on foreign inflows, the real might be as strong as 1.35 or 1.40 per dollar instead of its current level around 1.58, Brazilian Finance Minister Guido Mantega told Reuters.
Taking a longer view, Jens Nordvig, global head of G10 FX strategy at Nomura, said policies that lead to stronger emerging market currencies, particularly in China, "would be positive for both global inflation and growth" and decrease risks to a still-uncertain recovery from the 2007-2009 financial crisis.
"A further (rise) in the yuan would be a very helpful way to address the issue," he said.
One potential shortcoming of the G20's deal is that countries will not be bound to act on policy recommendations that emerge from the increased surveillance. The plan is being readied for a G20 leaders' summit in November.
That means China could continue to let the yuan rise at its own pace or the United States could drag its feet on cutting its deficits.
Things could slip into "an unseemly finger-pointing exercise" and may add volatility to markets ahead of future G20 meetings, said Alan Ruskin, Deutsche Bank's head of global currency strategy.
But there's something to be said, Englander noted, for peer pressure.
"When you have a bunch of countries around a table and your policies are up for review, that has a certain impact," he said. "It makes it harder to brush off everyone's comments."