The yen and Swiss franc are liable to weaken further in the short term, although residual caution will limit the scope for aggressive selling pressure

Risk tolerances have continued to improve at the beginning of this week. Measures of credit risk have eased with the European iTraxx crossover index, for example, falling by around 20 basis points to levels significantly below the 470 basis point level, maintaining the decline from peak levels above 550 basis points at the time of the Bear Stearns collapse

Asian equity markets advanced on Monday and European markets also secured modest gains even though there was evidence of profit taking from initial levels.

While fears remain at lower levels, there will be an unwinding of safe-haven demand and demand for defensive currencies will also tend to ease. In this environment, the Japanese yen and Swiss franc have weakened. Market fears are liable to remain lower in the very short term on hopes that credit-related panic has eased even though the mood of caution will continue.