Risk aversion became the holiday's main dish as lingering concerns over the debt issues that surround Dubai World and Dubai itself. Dubai was shaking confidence across the Persian Gulf after its proposal to delay $59B debt payments risked triggering the biggest sovereign default since Argentina in 2001. The heavy tone in European equities (which exhibited its largest one-day decline in five months) and US futures equity markets were mirrored in various emerging markets and respective currencies amid fears that Dubai World's debt troubles could be more than a blip. European bourses continued their heavy tone into the final hour of trading with the FTSE off just under 3% and CAC-40 following in sympathy.

The USD continued to extend gains against the major European currencies and put pressure on commodities in thin market conditions. The dollar hit 15 month lows against the euro during Asia above 1.5130 and was moving back to test 1.5000 with dealers noting Middle Eastern names as active sellers of the pair. The GBP was the weakest of the European currencies as chatter of repatriation flows related to 3.5B in Gilt coupon payments. GBP/USD declined by over two handles to test below 1.65 and GBP/JPY off by 300 pips to move towards 142.60 area.

-The JPY maintained the bulk of its gains against the majors with USD/JPY just off its 14-years lows at 86.30. The CHF was mixed against the majors despite early SNB intervention jitters.


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