Question: How do you lose a trillion dollars in 10 days?
Answer: Put it into Europe.
ForexHound.com‘s, James Hyerczyk had this to say this morning:
“The EUR USD fell to a new low for the year, in effect, wiping out the $1 trillion bet placed by the European Union over the week-end. Now that the short-term fix has been eliminated by the market action, the downtrend can resume its normal course. It looks at this point that the EU and IMF are out of bullets so buckle your seatbelt.”
Hyerczyk went on to say that the GBP sank to a low all-time low against the Euro and that “Weaker equity markets and the fear that the problems in the Euro Zone will slow down economic growth helped to pressure the USD JPY. Traders shed higher risk assets most of the trading session driving investors into the safety of the lower yielding Japanese Yen. It now appears that the Dollar/Yen is likely to remain under pressure until either the U.S. begins to raise interest rates or normal demand for higher risk assets returns to the market.”
Raising interest rates is of course, something the US will do anything to avoid at the moment. Whether the Fed buckles under pressure and raises by 0.1 or more is a new game of Russian Roulette that they probably didn’t think they’d have to be playing any time soon.
So where to next? Well, at this point it’s anyone’s guess.
But the learning’s from this exercise to leaders globally should be obvious: the markets aren’t stupid, the markets don’t believe in promises made to be fulfilled by successors.
Remember these words from James: “EU and IMF are out of bullets so buckle your seatbelt”