Borrowing the dollar cheaply to fund purchases of higher-yielding assets was a no-brainer in 2009, thanks to the Federal Reserve's repeated assurances that U.S. interest rates would stay low "for an extended period."
The "carry trade," as this strategy is known, may not be as sure a bet in 2010, though, particularly if fears of deflation in Japan and unsustainable deficits in Europe escalate, making the dollar's path unclear.
Investors received a sneak preview this month when the euro retreated from a 16-month high above $1.51 to a 3-1/2-month low below $1.43.
That was in sharp contrast to the "sell-the-dollar" trend that persisted for most of 2009, as the greenback shed over 15 percent against major currencies between March and November. (more)
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