You said Dubai, our survey said: Correct. Trouble in the UAE towards the end of last week sent a few shockwaves across the currency landscape but Monday painted a different picture.  

The pound was smiling against a subdued dollar early on in the week as a revival in moderate risk sentiment put sterling up 0.7% versus the greenback. The euro was also up 0.1% after figures revealed that the purchasing managers' manufacturing index rose to its highest level in October since March 2008.  

It was all about the US markets on Tuesday as consumer confidence and GDP figures came rolling in. The dollar pushed higher as stocks sold off in Asia on Japanese share sales and even the Canadian dollar had a go, jumping to its highest level in two weeks against US currency as gold and equity markets rose. 

On Wednesday, economists across the UK sang out a chorus of ‘we told you so’ as revised data showed that the British economy shrank by 0.3% in the third quarter compared with the initial estimate of a 0.4% contraction. However, sterling’s blushes were spared as all eyes were on the dollar which took its lowest tumble in over a year.

Minutes from Tuesday’s Federal Reserve’s policy meeting had described the dollar’s decline as ‘orderly’. Needless to say, this was a green light for traders to ditch the greenback, which gave the pound some consolation on a difficult day.  

Then came D-day Thursday in the UAE, which saw sterling fall against both the dollar and the euro. So what was all the fuss about? British banks' exposure to debt problems in Dubai as well as concern over UK economic health was the diagnosis and this continues to affect the pounds performance despite the UEA central bank pledging their support. Dubai moved on Wednesday to restructure its biggest corporate debtor, Dubai World, and delayed repaying some of the company's 59 billion dollars worth of liabilities. 

Things were a little more cheerful in Japan, where the yen soared to a 14-year high against the dollar despite direct government warnings of intervention against ‘abnormal’ currency moves. Further instability loomed as liquidity thinned out ahead of the US Thanksgiving holiday and the euro traded down as much as 0.2% against the US Dollar, the result of a volatile overnight session. 

By Friday, the US dollar and Japanese Yen looked set to extend their gains as European and US equity index futures traded deeply in negative territory. This pointed to continued risk aversion through the end of an already tremulous trading week as a potential default in Dubai inevitably gave investors a scare. With the UAE central bank scrambling to alleviate fears, next week may well bring some clarity to the saga.