Many predicted, rightly for now, that the dollar had to fall as a result of the proposal of yet another huge bailout in the US. It seems, apparently, that risk aversion has, to quote one analyst, “slightly dissipated.” So, there’s been a fair amount of piling back into the carry trade – a fact that seems at odds with the fact that the world’s equity and bond markets are far from calm. Furthermore, short-term FX implied volatility remains extremely high. These contradictions could be analysed to the nth degree, but from where I sit it’s obvious that nobody’s really got a clue.
