Some Trades Get More Difficult, In Part Due to Dollar's Strength
Dow Jones Newswires</br></br>For global investors, some of the most popular trades are getting a bit harder to carry.</br></br>The carry trade -- broadly defined as borrowing money in currencies with lower interest rates and reinvesting where rates are more favorable -- had been hugely popular last year.</br></br>In the second half of 2004, a falling dollar and comparatively low U.S. interest rates made the dollar an ideal currency to borrow, or fund, the trade. Many investors were also fond of the yen and the Swiss franc, since interest rates in Switzerland and Japan were so low. At the same time, they were investing the money and getting high returns on bonds in countries like the United Kingdom, Australia and in emerging markets.</br></br>More recently, a long list of factors have been unraveling the attractiveness of such trades. Among them have been the durability of the early-2005 dollar rally, rising U.S. interest rates, a more shaky outlook for the Australian dollar, traction in the Japanese economic recovery and the potential revaluation of the yuan by China.