The Yellen Bubble, or What Keeps the Euro Aloft
|By almost every comparison the dollar should be rolling up its European competitor. American economic growth is far stronger and accelerating; the Federal Reserve has begun a tightening cycle while the European Central Bank is looking for novel ways to loosen its monetary policy and the spread between 2-year Treasuries and their Bund equivalents has more than doubled since mid-December. Yet the euro has been trading in the same 1.3400-13800 range since mid-September. Why? We will look at some of the reasons why the currency markets can become disconnected from fundamentals and offer some speculation on when the links might be reasserted.
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