Megan McArdle has some interesting observations:
Now, it seems like a race between the British Pound and the Euro on which will sink faster. So far, the Pound is winning, as this Bloomberg report shows!The yen has been strengthening fast against the dollar and other currencies, which is very bad news for Japanese exporters.
It's also wrecking the carry trade. That's when you borrow at low interest rates in one place just to lend at higher rates somewhere else. For a long time, Japan has been a popular place to do this, for two reasons: the longtime recession has kept its interest rates low, and the government's committment to keep the currency cheap in order to subsidize exports has seemed like a shelter against a sharp currency move that would force borrowers to repay the loan in suddenly-more-expensive yen. Now that the yen is rising seemingly uncontrollably, investors are racing to unwind their positions.
The sharp movements in the currency market are somewhat surprising, particularly the euro's decline. Not very long ago, we were asking whether the euro would replace the dollar as the world's reserve currency; not (sic) it's the "sick man of Europe", as confidence in banks and businesses has been badly shaken.
The pound fell against all 16 of its most-traded counterparts, dropping l.3 percent to $1.5420 as of 11:43 a.m. in London, from $1.5897 last week, when it had its biggest intraday decline in at least 37 years. Against the euro, the currency slipped to 80.73 pence, from 79.31. It traded at a record low of 81.96 pence per euro on Oct. 24.The Euro is keeping pace with the Pound:
Against the US dollar, the European currency traded down during early deals on Monday. At 5:10 am ET, the euro- dollar pair declined to 1.2336, compared to Friday's closing value of 1.2605. This set the lowest point for the pair since April 28, 2006. The pair is currently trading at 1.2443, with 1.21seen as the next target level.
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