There were perplexed and apprehensive glances exchanged early last Monday as no one was entirely sure what depth of impact the situation in Dubai would have on the exchange markets.

Both Abu Dhabi and the UAE Central Bank quickly came forward to assure markets of their support for the besieged Emirates State to soften the blow, yet repercussions for ‘fairy godmother’ Western lenders are expected to come around.
 
Other weekend news took a back seat but was largely centered on Japan, where intervention chatter continued to reverberate around the markets and officials maintained their stance on the current volatility in foreign exchange rates.

The Dubai rumpus continued to dominate headlines on Tuesday  although the market contained the news with a steady rally in US and Asian stocks. The Reserve Bank of Australia raised their official rate by 25 basis points to 3 3/4% completing a hat-trick of interest rate rises. However, the Aussie remained subdued with both the decision and the comments that followed widely anticipated.

The strength of Eastern European currencies saw myself and my colleagues at Currency Solutions taking a lot of calls from clients looking to bring back funds from Poland. The euro itself gained across the markets and it has been heavily bought into as an alternative reserve currency over the greenback by Asian central banks and Russia.

The dollars wasn’t up to much on Wednesday having had a good run the previous day, which was largely due to the Dubai fear factor. Restored comfort saw the euro push through the 1.51 level against the dollar, sterling also gained back to the 1.66 level.

It was business as usual in the markets on Thursday as the search for yield gathered impetus. The Japanese Yen wore the loser’s hat, surpassing the US dollar as the currency of choice to sell. The recent stimulus from Japan and verbal attempts to weaken the currency saw the yen finally feeling the pressure.
 
The pound softened a little after UK PMI services data came in weaker than expected at 56.60 down from 56.90 in October and later in the day the ECB announced that they would take small steps to cut liquidity.

Jean-Claude Trichet announced that they will terminate the one year tender in December and that the final tender will be offered at an average policy rate. They also announced that the 6 month tender will end on March 31, gesturing towards a cut in the stimulus program.
 
As Friday rolled in, the dollar lost ground against the Aussie and the Kiwi but gained against the pound and the euro in later trading.

The market awaited payroll and unemployment data from the US which came in a lot more positive than was previously thought, boosting optimism about a recovery in the US and prompted speculation that the Federal Reserve will exit its ultra-loose monetary policy earlier than previously thought.