Euro up 3.5 cents over the past three days as stocks fell 4%
Why is the euro strengthening as global stocks take a beating?
The three word answer: The carry trade.
Because of ECB interest rate cuts and QE, the euro is cheaper and easier to borrow than virtually anything else.
So what have market participants done? They've borrowed it and invested in higher-yielding assets or risky assets. Those assets are generally in other currencies -- like US stocks.
What happens in a market rout? Investors cut trades back to cash and look for safety. So all the euro borrowing and selling is unwound.
So long as the ECB remains in ultra-dovish mode this paradigm will continue.
