Carry Trade Sell-Off Forces US Dollar Rally, Greenback Withstands News of Iran-US Confrontation

Tokyo and London session traders sent the dollar significantly higher heading into the US open, as sharp drops in the Japanese Nikkei 225 index forced a general unwind of Japanese Yen and greenback short positions. Relatively unchanged UK FTSE 100 and German DAX indices eased broader carry trade selling pressures, but it remains clear that momentum remains to the downside for global risky asset classes. Indeed, the Japanese Yen has been the strongest performer among all major world currencies on the past week of equity market sell-offs. Unless such stock market bearishness subsides, we may continue to see much of the same price action into the week ahead.

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Written by David Rodríguez, Currency Analyst for DailyFX.com, drodriguez@dailyfx.com