Weekly Update

The euro suffered its biggest single session drop against the Japanese yen since it was launched in 1999, and it extended losses against the U.S. dollar as the credit crisis prompted European governments to step into the marketplace and promise to shore up beleaguered European financial institutions. The euro is currently plumbing 14-month lows against the U.S. dollar.

Over the weekend, the German government hobbled together a bailout package worth EUR 50 billion for Hypo Real Estate Holding AG, France's BNP Paribas SA, the largest French bank, took over the Belgian segment of Fortis Bank after the Belgian government's efforts to bail the bank out faltered.

The expansion of the credit market crisis has translated into a heightened state of risk aversion which has in turn led to a virtual drying up of the carry trade. (Carry trade is the practice of borrowing money in a country with low interest rates, such as Japan, to invest in higher yielding assets elsewhere). With diminished access to liquidity, investors are exiting those higher yielding assets and repatriating funds to the source currencies, which has been a massive benefit to the Japanese yen, one of the main currencies used for financing the carry trade.

The Canadian dollar fell to its lowest levels against the U.S. dollar since May 2007 as commodity prices fell. Commodities account for over half of Canadian exports, so dips in commodity prices often impact the loonie's fortunes. In particular, oil prices fell below USD 90.00 a barrel for the first time since February. As a net exporter of oil, Canada's currency is especially sensitive to movements in the price of crude.