Currencies: Carry trade puts US dollar under further pressure

The US dollar, already weakened, is coming under pressure form the carry trade. Investors are borrowing dollars at tiny interest rates, selling them and parking the money in higher-yielding currencies.

The dollar sell-off has gained momentum. The dollar index, which tracks the greenback against a basket of major trading partners' currencies, slid by almost 2% last week to a 12-month low. The dollar has also hit a nine-month low against the euro. Mounting global risk appetite has reduced the appeal of the dollar as a safe haven, while the Fed's money-printing and the towering budget deficit have also undermined confidence in the dollar.

But there's another reason the dollar has weakened: it is now "the big funding currency" for the carry trade, says Jonathan Clark of FX Concepts. As they did with the yen, investors are borrowing dollars at tiny interest rates, selling them and parking the money in higher-yielding currencies.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up
MoneyWeek

MoneyWeek is written by a team of experienced and award-winning journalists, plus expert columnists. As well as daily digital news and features, MoneyWeek also publishes a weekly magazine, covering investing and personal finance. From share tips, pensions, gold to practical investment tips - we provide a round-up to help you make money and keep it.