A quick
reminder that anyone mad enough to want to meddle with the world's major
currency pair, the euro vs the dollar, ought to be locked up for life in a lunatic asylum.
The last
time a "concerted exchange rate policy" was put in place on the
dollar was at the Louvre agreement in February 1987. G7 countries decided then that
the dollar was "low enough" and that they would intervene if it did
go any further.
The problem
was that, in retrospect, it turned out to be not that low at all. And since it
was "blocked" on the way down, then something else had to give,
namely interest rates. So up they went. 10y
Treasuries, which yielded 7% in January, went down 17% in price, to a yield of
9.50% in late September. Then everything exploded and yields on Treasuries climbed
up to 11% intraday on October 19th, causing the Dow to drop by an unprecedented
22.5% on that day.
