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Currency markets hold up under US crisis

US SPECIAL – The currency markets remain largely unaffected by the tragedy that hit New York this week, according to industry specialists.

Jessica James, head of strategic risk management advisory at Bank One in London, says that the markets were largely expected to show some volatility but have been supported by the overall economy and people showing compassion. “People don’t appear to be taking too much advantage of the situation. And the US economy is so large that it can sustain tragedies of this size to a certain extent.” She adds that the climate will undoubtedly be dollar negative for a while, but that there won’t be any real short or long-term effect.

Ulf Lindahl at AG Bisset, chief investment officer agrees, but says the mood is nonetheless sombre. “It’s mainly business as usual, though people are understandably downbeat,” he says.
He suggests that the use of currency models in determining whether to buy, sell or hedge, coupled with the fact that most currency players are part of big institutions that have sophisticated back up sites and systems in place, has prevented the currency overlay markets from being hit in a big way.

Martin Porter, chief investment officer at JP Morgan, says that the dollar may suffer, but largely as a result of the macroeconomic situation before Tuesday’s events. “
“The dollar is usually a safe haven during crises such as this, but with the prospect of recession looming, the euro is likely to gain against the greenback.”

This view is supported by BNP Paribas’ chief currency strategist Hans Guenther Redeker, who predicts a weaker dollar against the euro as increased risk aversion discourages capital flows to the US.
But this is only seen as short term. “A widening off credit spreads in the immediate period after the tragedy can be expected but there is no reason to change longer term credit strategy,” he says.

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