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Higher U.S. rates creating carry trade supporting dollar

Section: Daily Dispatches

Watching Global Flows Explains Why the Dollar Won't Be Kept Down

By Liz McCormick
Bloomberg News
Wednesday, March 6, 2019

The dollar's resilience after what some have categorized as the most dovish Federal Reserve turnaround in history comes as little surprise to Exante Data's Jens Nordvig.

U.S. President Donald Trump may be looking to jawbone the greenback. But for Exante, it's still all about the grab for yield, with rates on dollar-denominated assets remaining more attractive relative to the painfully low or negative ones found in Europe and Asia. The firm's analysis of the holdings of global asset managers suggests that isn't going to change any time soon.

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Exante's flagship global flow analytics product aggregates fund managers positioning in fixed income and currencies to pinpoint extremes. It's readings -- which have helped snag Exante clients willing to pay $60,000 a year for its insights -- include gauges of activity tied to carry trades.

Inflows into this strategy, a bet in which an investor borrows in a lower-yielding currency and invests in one with higher rates, using purchases of dollar-denominated assets surged this quarter to multiyear highs. That's come even as Fed Chairman Jerome Powell and his colleagues have indicated a resolve to stand pat on policy normalization for now. ...

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