Earlier today, we recapped the discussion surrounding The Wall Street Journal‘s late-February story, “Hedge Fund Pounds Euro: Traders Pile On, Using Multiple Big Bets Greek Crisis Will Push Currency Lower” (or, if you only read the large font on the front page of the Journal, “Hedge Fund Pounds Euro”). In so doing, we realized that although WSJ editor Mike Siconolfi had responded in depth to questions about the purported secrecy of a dinner among hedge fund managers described in the article, he hadn’t said much about the potential for hedge funds to move a currency as liquid and widely traded as the Euro. (This was another point of contention raised by Reuters’ Felix Salmon and others.) So we asked him about it.
Here’s what he said:
Thanks Mike. We agree that the euro is a huge, deep market. In fact, I’d point to the language prominently displayed in the story, which says (emphasis mine):
It is impossible to calculate the precise effect of the elite traders’ bearish bets, but they have added to the selling pressure on the currency — and thus to the pressure on the European Union to stem the Greek debt crisis.
Few traders expect the value of the euro to totally collapse, the way the British pound did in 1992 amid a large bearish bet by Mr. Soros. In that famous trade — which traders say led to a $1 billion profit — selling led by Mr. Soros pushed the pound’s value so low that Britain was forced to withdraw its currency from the European Exchange Rate Mechanism, causing the pound to drop even more sharply. The euro is an extremely deep market, with at least $1.2 trillion in daily trading volume, dwarfing the British pound’s daily trading volume in 1992
As for the headline, I’d ask that you also read that carefully. It says:
Hedge Funds Pound Euro — Traders Pile On, Using Multiple Big Bets Greek Crisis Will Push Currency Lower
Hedge funds were selling the euro and using multiple bets to do so, adding to the downward pressure on the currency. Underlying the bets was the belief that the euro would fall further. That’s what the headline says.