Optimism had returned to the currency markets, where the carry trade was back with a vengeance.

ECONOMIST: A good run for investors. But for how long?

Pressure to buy yen can be seen in the sharply higher volatility, spiking up to 9% from 6% earlier this month, according to Interactive Brokers, which notes that there is also higher volatility in the Swiss franc, another carry-trade currency that is rallying this week against the British pound, the Australian and Canadian dollars and the euro.

FORBES: Carried Away

The carry trade involves a currency play in which a lower interest rate currency is sold to purchase a currency with a higher interest rate.

FORBES: Outlook 2012: Can U.S. Dollar Bulls Keep Hold Of The Reins?

In New Zealand, whose currency is a favorite trade of yen carry-traders, the central bank raised rates for the fourth time this year on Thursday, to 8.25, but signaled it was probably done with its tightening.

FORBES: Carried Away

Currency traders were emboldened to take on risk, rebuilding carry-trade positions, and safe harbors like U.S. Treasuries and Japanese government bonds slid.

FORBES: Asian Traders Hope Bailout Is More Than A Patch