Dollar gains as widespread risk aversion impacts the markets.
26 July 2007
Concerns surrounding the US sub prime lending market manifested themselves into the selling of property related US stocks and this triggered a massive fall in the Dow Jones. As the saying goes, when the US/Dow sneezes, the rest of the world catches a cold as has been proven in European and Far East stock markets.
Whereas the US Sub-Prime lending problems had hitherto led to Dollar selling, the involvement of the rest of the world has prompted a ‘risk aversion’ stance for traders across the world and this has led to the unwinding, or profit taking, of any currency, stock or commodity trades that had proved successful in recent months. This includes GBP/USD, EUR/USD, the Yen ‘carry trades’ (NZD/JPY, AUD/JPY, GBP/JPY, EUR/JPY etc), gold as well as stocks.