Carry trades weaken yen

Story link: Carry trades weaken yen

Optimism that the credit crisis is easing drove much of the movement in currencies markets on Friday as investors felt comfortable about re-entering risky carry trades, in which purchases of high-yielding currencies are funded by loans in lower-yielding currencies.

The yen, one of the most popular currencies for funding carry trades due to Japan’s 0.5 percent interest rate, weakened against all major currencies as the number of carry trades increased.

At around 11 a.m. in New York, the yen traded at ¥104.4050 to the US dollar, at ¥164.2603 to the euro and at ¥208.3504 to the British pound.

At the same time, the yen was at ¥96.8461 to the Australian dollar, at ¥82.235 in relation to the New Zealand dollar, and at ¥13.461 to the South African rand.

The pound and the US dollar both gained on the euro with the pound trading at 78.84p to the euro while the greenback was at $1.5733 to the shared currency.

The UK currency was helped out by a report that the Bank of England will move to relieve lenders of up to £20 billion in bad mortgages, even though no details of what the plan might entail were forthcoming.

The pound was little changed versus the US dollar at 50.11p to the US currency.

Besides gains against the yen, the Australian and New Zealand currencies also gained versus the US dollar, which traded at 92.76 cents US to the Aussie and at 78.70 cents US to the New Zealand dollar.