The mood of caution may persist in the short term, but heavy selling of carry trades should be resisted at this time

Risk aversion has increased again over the past 24 hours. Equity markets have generally struggled over the past 24 hours with some retracement after the recent recovery. The Asian markets were also unsettled by weaker than expected results from US insurer AIG which renewed fears that credit difficulties could intensify again

There has also been some widening of credit spreads over the past 24 hours.

In response, there has been some renewed flight to quality with the Japanese yen and Swiss franc gaining ground. The Japanese currency pushed to test levels below 103.0 against the dollar while the franc strengthened to 1.04. The Japanese yen and Swiss franc also strengthened significantly against the Euro on Friday.