There is also many small players (corporations, institutions) in emerging markets who do not trust their own domestic currency to perform well in the crisis ahead, and they buy $ in these times. Always did, still do (although some may be buying euros now, it is still not the majority). Pierre
What a bizarre solution though. Let's see how well that works out for them.
At the beginning of August traders speculating in oil futures had bet the price of a barrel of light sweet crude, delivered in September, up to almost $80, sparking a renewed outburst of worry that the fabled day of the $100 barrel of crude might soon arrive. Two weeks later, the price of that September barrel of crude has dropped to around $72. In the interim, stock markets around the world went on a wild ride. The first explanation offered by analysts is that traders are worried that the credit crunch afflicting financial markets might spread into the general economy. Slower economic growth would mean less demand for oil, thus depressing prices. But on Monday, the Wall Street Journal's Matt Chambers suggested another explanation: Hedge fund operators are selling off their oil futures holdings, as part of a generalized effort to reduce their overall risk exposure. With so much going wrong elsewhere in their portfolios, it's time to sell risky assets and raise cash. It's the new, "risk averse" Wall Street, pledging, once again, to mend its carefree ways.
Here you have it: one month those problems in the US subprime mortgage market cause dollar to drop, while Dow Jones shoots over the record 14000 points. A month later, the cause is the same, the effects are reversed... Amazing!
You can sum it up by saying that the subprime crisis has "increased the volatility" of the currencies Pierre
I think it is interesting that unlike in previous global financial crises (such as 1997) which originated outside the US and saw the Fed take the decisive action, this crisis has originated in the US, both in the private sector (the refinancing bubble) and within the Fed (Greenspan's bubbly monetary policy), and resolved by the European Central Bank.
It was interesting 2 weeks abo to read the FT and the IHT on the plane and see that the facts reported were that the ECB intervention was sizeable, timely (and well-paced over time) and effective, but the analysis and the presentation of the facts was full of innuendo about panic, overreaction, and paying more attention to the Fed's actions than they maybe deserved. Can the last politician to go out the revolving door please turn the lights off?
