Just imagine you are BMW or Seimens or some other giant European exporter with huge business exposure in the US. Two months ago you were terrified the dollar would keep dropping and you were probably hedging as far out as was feasible (buying EUR/USD forward) . Two months later your booking big currency losses because your hedges are under water.
For US firms its the reverse. You were happy to let the dollar fall and probably weren’t hedging much because things were heading your way. Now you are hitting bids in EUR/USD in a panic…
Most firms would rather have forex stability than strength or weakness as they at least know their costs of doing business. These sorts of markets make it very very tough for them.
Same story for overseas investors. Some funds hedge currency exposure and others don’t. For the bulk of 2009 US investors were repeatedly told to stash a big percentage of their holdings overseas to take advantage of the falling dollar. Hows that working out for ‘ya?
All of a sudden those newbies are getting killed both by falling prices in local currency and in the currency itself. All that contributes to the violence of these market moves when the come unglued…