Dollar Stabilizes, but Likely a Sale

Another factor in the currency market today may be end of the month hedge and position adjusting. This could make the 11 a.m. EST/4 p.m. GMT fix particularly active. Given the decline in most European equity markets over the past month, some fund managers may have over-hedged their euro exposure and may need to buy euros. The Nikkei was one of the few major markets to finish the month higher (+1.27%), which may require some hedge-related yen sales.

Note that even with this two-day slide, most emerging Asian equity markets finished higher on the month, with Hong Kong (-2.26%), India (-8.2%) and the Philippines (-5.3%) the major exceptions. Global debt markets rallied and fixed income fund managers generally carry higher hedge ratios than equity investors, but often the hedges do not appear to be adjusted on a monthly basis. In any event, euro-zone 10-year benchmark yields fell 14-16 basis points over the month, while Japanese government bond yields declined by 9 basis points. Lastly, back-of-the-envelope calculations suggest that something close to $1 trillion of market capitalization has been destroyed by the global equity market slump, which was only partly offset by the bond market rally.