The dollar’s still not safe

By Felix Salmon
November 27, 2009
Dubai round-up this morning:

" data-share-img="" data-share="twitter,facebook,linkedin,reddit,google" data-share-count="true">

One quote jumped out at me from the Reuters Dubai round-up this morning:

“We have seen a classic risk aversion reaction in the markets over the past 24 hours. The dollar has slumped, the yen is stronger,” a Societe Generale note said.

Needless to say, this isn’t exactly a classic risk-aversion reaction: when the markets are really scared, they tend to flee to the safety of the dollar, rather than to the Japanese yen. So my feeling is that this — along with the relatively modest stock-market reaction in New York this morning — counts as a sign that Dubai really isn’t all that bad: it shows that markets are trading the news, rather than panicking.

On the other hand, it’s clearly not good news that a severe-if-not-life-threatening shock such as this one sends the dollar down rather than up. The immense fiscal cost of the financial crisis has hurt the dollar’s standing as the global reserve currency, and if I were at Treasury right now I’d be very concerned about this reaction. Not that there’s much Treasury can do about it.


We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see

err…..Salmon, the USD is up today, not down; half a tick at 75.28 right now.

Posted by otto | Report as abusive

Err….. Salmon if you understand risk aversion, you understand that if people who have bought risky assets and want to get out of them, they are now selling those assets in whatever currencies and buying back the currency they borrowed against. So they are buying back Yen and USD to pay off the loans and reinvest in safe JGB and Treasuries. Against most other currencies but JPY the dollar is up.

Posted by M | Report as abusive

So we’ve got a Reuters reporter quoting a Societe General without checking his facts and a Reuters blogger quoting the reporter without checking.What happened to journalism?

wot M said

Posted by otto | Report as abusive

Just a heads up Felix…the dollar has exhibited strength since the Dubai story broke. This might also help explain why Treasury yields went negative last Thursday and the 7 year T-bill auction this past Wednesday saw stronger than expected demand. Risk aversion is back and we might be seeing the start of a dollar reversal now.

In defense of Felix, the Dollar vs. Yen was down quite a bit on Thursday night (NYC time), it then clawed its way back to almost flat. So depending when this entry was posted this morning, it would still be correct. It would be more correct last night.

Posted by victor | Report as abusive

The dollar was down relative to the yen; however, in aggregate, the dollar was up against other world currencies. Essentially what we’re seeing is a flight to safety, combined with the unwind of the Yen carry trade and the U.S. dollar short position (carry trade w/ just about anyone else). Yes the Yen was up, but no the dollar overall was not down.