The volatility in the Icelandic króna and the Icelandic bond market sent rippels through the global markets yesterday.
According to the Wall Street Journal, the depreciation of the Icelandic króna caused “a broader cutback in high-yielding and emerging-market positions with sharp declines in the New Zealand and Australian dollars, Brazilian real, Mexican peso, South African rand and Polish zloty, among others.”
According to the Financial Times, “the krona’s collapse meant carry trade investors who borrowed in euros to gain exposure to Reykjavik’s 10 per cent interest rate, saw one-and-a-half years’ worth of carry trade profit wiped out in less than two days.”
The Financial Times quoted David Bloom, currency analyst at HSBC saying,”We have had a car crash in Iceland and people will have closed their winning positions in order to fund their losses.”
