The US dollar rose versus most of the majors - with the exception of the Japanese yen - as concerns about the health of the financial markets triggered an increase in demand for safe haven assets and a further unwinding of carry trades.
As mentioned in our write-up about the Japanese yen, US Treasury Secretary Henry Paulson said that the government would not purchase illiquid mortgage-related assets under the Troubled Assets Relief Program (TARP), spurring fears that banks won’t be able to weather the persistent financial crisis without another party taking troubled assets off their books. Meanwhile, the Bloomberg Professional Global Confidence Index rose slightly to 6.6 in November but still remains near the October low of 4, which was worst reading since the survey began a year ago. Indeed, the market turmoil and fears about a broad global economic recession is taking a heavy toll on sentiment, which helps to explain why stocks have fallen so rapidly and why the US dollar has surged. As a result, it may be more beneficial to keep an eye on risk trends and data from regions like the Euro-zone and UK, as US data has not had a reliable impact on the greenback lately.
Related Article: Dollar Congestion Belies High Volatility, Bigger Fundamental Problems
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