Carry Trade Gains Strength as Dollar Extends Rally

The dollar continued to gain strength against both the Euro and the Yen overnight. The rise in US yields this week makes it even more tempting to engage in the carry trade, borrowing weak currencies like the Euro and buying dollar denominated assets. In situations like this, carry trades make money both on the depreciation of the borrowing currency (Euro, yen) and on any yield investors receive from their dollar-denominated assets. This has pushed the Euro firmly below 1.24 and pushed the yen to almost 120 to the dollar.

Euro FX Futures

Euro FX Futures

Stock and bond futures were little changed overnight; the ADP employment report was weaker than expected, but has yet to translate into market movement. People are waiting for events later in the week. Tomorrow we have the ECB interest rate meeting and Friday is the non-farm payroll report out of the US. 

ESZ14

Elsewhere in the news:

10 year US Treasury Futures

10 year US Treasury Futures

Categories: Markets

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