The unwinding of carry trades may have gone too far
Aug 29 (Reuters) -The unwinding of carry trades may have gone too far, pushing higher yielding currencies much lower just before a series of expected easing cycles boosts risk appetite underpinning the currencies investors have sold.
In contrast, currencies they have purchased that will be undermined by monetary policy moves remain the best way to fund carry trades that should prosper if equity markets continue to rise on the sea of interest rates cuts now envisaged.
The division is extreme with the Turkish lira, Indian rupee and Brazilian real falling to, or towards, record lows versus the dollar. Mexico's peso - which was central to many carry trades - has collapsed, driving investors and speculators from long positions.
In contrast, the yen and Swiss franc and euro have shot higher as investment in the dollar is purged before the first move in the U.S. easing cycle.
Risk appetite remains robust, with stocks soaring and more cash heading into some carry trades, significantly boosting the value of the pound, South African rand and New Zealand dollar.
Expectations for a U.S. easing cycle that is likely to influence other central banks are acute, with the U.S. interest rate expected to plunge in the next year. Central banks in Britain, the eurozone and Switzerland are expected to follow suit, slashing interest rates that will support stocks and speculation in other financial markets.
Currencies much weakened in advance of this easing cycle may thrive during it, while those that are seriously undermined by easy monetary policy like Swiss franc, yen, Thai baht and Taiwan dollar, may end this cycle far weaker than when it began.
For more click on FXBUZ
(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)
</body></html>Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.