As Currency War Beckons, Here Is One Trader’s Dollar Mea Culpa

Poor Mark Cudmore.

A few hours ahead of Wednesday’s decidedly dovish Fed statement, the former trader made a rather bold call. Specifically, he said this:

The Fed’s poised to ignite a violent dollar rally.

And in case that wasn’t clear enough, he elaborated as follows:

Dollar risks are starting to seem skewed all one way: toward an immediate rally.

Several hours later, this is what happened:

 

That was of course the result of a Fed that not only came across as cautious on the outlook for inflation, but also a committee that appeared to give themselves an “out” on September balance sheet normalization.

The greenback managed to rebound a bit on Thursday…

 

…but generally speaking, things aren’t looking great…

 

 

This has of course been accompanied by all kinds of euro strength and when you throw in the rally in metals, commodity currencies are underpinned as well. Taken together, this sets the stage for what could conceivably morph into a currency war. We talked about this at length earlier and for those interested, you can review the posts here:

• ‘Sonata, Adagio & Minuet’: A ‘Symphony’ Of Debate Emerges Around Surging Euro
• An ‘Explosion Of Large Block Trades,’ And A ‘Currency Cold War’

Simply put, everyone is trying to normalize, but no one wants to see their currencies soar. As Richard Breslow wrote earlier today, “it’s certainly been a home-run trade this year to be short dollars but don’t expect the ECB to respond to a hesitant Fed by becoming more aggressive in their tapering rhetoric.”

Meanwhile, EURCHF has breached 1.12 for the first time since the SNB abandoned the floor.

 

 

As we put it bright and early Thursday morning, “needless to say, that means it’s attractive as a funding currency.”