Friday, June 4, 2010

Bell Rings For Carry Trade Unwinding

Dear Readers,

The carry trade currency used to be Japanese Yen just two years back but now its been replaced by USD, thanks to US Fed Reserve. Mr. Bernake and Co. lowered interest rates to near zero last year and the effect was clearly visible on all assets all over the world. So far every Fed statement was more about keeping interest rates low ostensibly to support 'weak' economy and now they are 'hawkish' despite continuing high unemployment rate.

In my post on 23 March, I warned that 'the beginning' of new era of deflation has started and one of my reasons was fear of higher interest rates. Although we have been getting hints of 'voices' demanding an end to near zero interest rates, today there is this news from Reuters and I guess this is going to be the beginning of unwinding of US Dollar based carry trade. If my fears prove right then there may be a bigger crisis kind of situation for all assets including precious metals and 'resilient' emerging markets. US Dollar should get stronger as well, continuing its rally against most currencies as speculators unwind their 'carry trades'.

1 comment:

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