Shortly after the height of the market's fears last week, a relief rally was triggered by the Fed's efforts to bailout struggling AIG and later by the government's suggestion that $700 billion would be put towards removing illiquid assets from bank's balance sheets. However, without details from the massive US bailout and matching plans for other financial centers we have seen the rebound in optimism waver. Today, equity markets in the US closed their worst two-day loss since 2002. From the relatively low-risk treasury and money market, the yields fell back as caution drew traders back into the deep liquidity of the market. And, for the currency markets, the dollar actually gained ground. While this may seem counter-intuitive, it actually makes sense. With global investors looking for safe harbor (liquid US Treasuries and money market accounts) and pull back from high-yielding assets (the greenback's benchmark yield puts its well off the high-risk map), there was a natural shift back into the currency.
