Dubai Bailout

The euro rose and the Japanese yen fell on news that Dubai had received a $10 billion dollar bailout from Abu Dhabi to enable the country to pay a $4.1 billion Islamic bond which matures on Monday. Last month the news that the Dubai government holding company Dubai World may default on its debts sent shockwaves through global markets. The news of the bailout lifted risk sentiment in global markets. Jun Kato of Shinkin Central Bank Research Institute in Tokyo stated, “The announcement eased concerns about the Dubai debt troubles to some degree, but it will likely be temporary and the positive impact on stock and currency markets seems to be short-lived.” In November the yen had benefited when Dubai worries were at their height as investors sought safe haven assets. The yen is widely used to fund carry trades and usually rises on risk aversion.

Euro Gains Likely to be Capped

Currency analysts said the euro benefited from the bailout but said gains were likely to be capped due to market liquidity decreases in advance of years end. Kasper Kirkegaard of Danske Markets in Copenhagen stated, “The Abu Dhabi news helped risk sentiment, boosting the euro. The yen suffered from a squeeze (in long yen positions). But we should be careful; the markets are thinning out so we could see some volatile moves.”

Euro Zone Data

Euro Zone economic data released Monday showed euro zone industrial production in October and rising unemployment. European Union statistics office Eurostat said that the euro experienced a month to month fall of 0.6% and a year on year decline of 11.1%. Some economists say that decreased industrial production indicates that euro zone recovery may be prolonged and weak. European Union statistics office Eurostat said of ING stated, “The marked relapse in industrial production in October is a sobering reminder of the fragility of the economic recovery in the euro zone,”