Dollar Hits Air Pocket, Euro in Epic Short Squeeze:“I wonder whether we’re not living in a new world in which governments no longer control as much as they think they control.”
by Wolf Richter
WolfStreet.com
May 7, 2015
“I wonder whether we’re not living in a new world in which governments no longer control as much as they think they control,” Mohamed El-Erian, Allianz chief economic advisor, told the crowd of hedge fund gurus at the annual SALT conference on Wednesday.
Maybe he’s on to something.
Acting under pressure from many Eurozone governments that believe it will save their hides, and acting out of its central-bank logic, the ECB is trying bash down the euro. For years, it threatened to print money. Now it is actually printing money and buying debt, and it’s inflicting its negative deposit rates on the markets. This drove much of European sovereign debt into the absurdity of “negative” yields – in quotation marks because logically, there should never be such a thing. But in this upside down era of central-bank deities, everything is possible.
At the same time, the Fed stopped QE and is currently contemplating interest rate increases. This juxtaposition of euro easing and dollar tightening unleashed a ferocious tsunami of hot money from Europe to the US.
As a result, the euro plunged 25% against the dollar within 12 months, from $1.40 to $1.05 by mid-March. For shorts, it was the biggest no-brainer in the history of mankind. Everyone was short the euro. They were doing what the ECB wanted them to, which was push down the euro. Central banks and governments alike felt in control.
The Rest…HERE
