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Strategies & Market Trends : Currencies and the Global Capital Markets

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To: Robert Douglas who wrote (492)	8/28/1998 3:42:00 PM
From: Henry Volquardsen	Read Replies (1) of 3536

Robert, the sharp sell off the last few days was in response to rumours the Fed was going to cut interest rates. In addition many speculative traders have been bailing out of yen, mark and swiss funded shorts vs the emerging markets. A couple of weeks ago, before Russia really hit the fan, a lot of specs were expecting a quiet balance to the summer. To take advantage of this many put on short yen, mark and swiss positions vs long emerging markets. This allowed them to earn the implied high interest rates in the emerging markets while paying the low interest rates in the above 3. With the emerging markets hitting the fan again these specs have been forced to unwind these trades. These trades all go through the dollar so the buying back of the short yen, marks and swiss translated into dollar selling against these currencies which was matched by dollar buying against the emerging markets. Regarding the impact of fundamentals such as trade deficits, they don't suddenly have an influence over a couple of days. Henry

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