For a more nuanced, less smartass answer see Brown Brothers, Harriman and Co's Head of Global Markets Strategy, Marc Chandler:
Two weeks into the year and most investors are nursing sizable drawdowns. The recovery in the US equities on January 14 looked like the a potential turning point. However, the coattails proved non-existent, and the bull trap was sprung with new downside momentum established before the weekend.
The obvious takeaway is that the current driver is not to be found in New York. And to be sure, we are not just talking about equities, but during this market meltdown, correlations between various asset classes and instruments have increased (or become more inverse).
Nor is what is happening in the foreign exchange market driven by the US dollar. We suggest that presently it is best to consider the dollar as the fulcrum though it has appreciated against most major and emerging market currencies through the turbulence since the start of the year.
There are a few currencies that have appreciated against the dollar over the past two weeks. They are the euro, and currencies like the Danish krone and Swiss franc that are closely linked, and the Japanese yen. What the euro and yen have is that they have been used extensively as funding currencies. Foreign portfolio investors are also believed to have been running high hedge ratios. Existing interest rate differential mean hedging not only does not cost money, but an investor is actually paid to hedge.
The emerging market currencies that have risen against the dollar over the past two weeks shares a common feature. They are all from Central Europe: Hungary, Bulgaria, Czech, and Romania. This is largely a function of the euro's rise. They have mostly risen less than the euro against the dollar, which means that the euro has appreciated against them. The exception is the Hungarian forint, which is up 0.55% against the dollar compared with the euro's 0.50% advance. The difference is insignificant.
The Polish zloty is notable in its absence. The political climate has changed in Poland following the election last year. The agenda of the Law and Justice Party is scaring investors and spurred a cut in its ratings by S&P ahead of the weekend. Poland is also at loggerheads with the EU. Having lost 4.5% in the past two weeks, the zloty is one of the weakest of the emerging market currencies. The euro is trading at four-year highs against the zloty....MORE