The one way down bet on the U.S. dollar came abruptly to an end yesterday as the flight to riskier assets was finally questioned by investors. With the announcement of the Dubai debt standstill agreement. After hitting a 14 year low against the Japanese Yen on Thursday, triggered by the release of the Federal Reserve minutes which spoke of an "orderly" decline in the U.S. dollar, traders sold off the green back. However, the slide came to an end last night with the realisation that there were still structural risks in the emerging markets after Dubai told debtors that it would hold paying down debt until 2011. After after an overall 70%+ increase in the MSCI emerging markets from the march lows, the markets responded with a surge in the dollar and a signficant fall in market indicies e.g. FTSE and Nikkei both down over 3% with U.S. market closed for Thanksgiving holiday.
The decision to short the Euro/Dollar and buy US Dollar/South African Rand was vindicated nicely after some initial jitters on Wednesday. After taking profits this morning, these trades have been reestablished on a pull back.
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