WHATS BEHIND THE DOLLARS HUGE ONE-DAY DIVE?
Today’s stunning drop by the dollar on foreign exchange markets left veteran Wall Street currency traders with their mouths agape. “I’ve never seen anything like this,” says Michael R. Rosenberg, manager of international fixed income research at Merrill Lynch & Co., after the buck skidded from 130 to 120 yen, its largest one-day fall against the Japanese currency in 25 years. He attributes the drop in part to “forced liquidation of positions” by traders who had borrowed yen at Japan’s near-zero interest rates and plowed the proceeds into U.S. Treasuries and other higher-yielding investments outside Japan. This liquidation has been going on for several days, he observed, but not in great volumes. Indeed, today’s dollar drop came amid subdued trading volume — possibly another factor in the sharp decline. “We’ve got a very thin market,” says Rosenberg. “Our trading desk has not seen the kind of order flow that would have caused this move.” Rosenberg noted that along with the dollar’s plu
