Tuesday, June 23, 2015

Why is the euro falling on good news from Greece?

Its all about the “carry trade.”
Currency investors often borrow in a currency with low interest rates to buy another with much higher interest rates, and pocket the difference, known as “carry.” The eurozone has some of the lowest interest rates in the world, making the euro a favorite for funding such trades—a role it has gradually wrested away from the dollar over the past two years. 
The borrowed euros are typically used to fund bets in riskier markets. If risks rise in financial markets (as they did while Greek talks were deadlocked), investors tend to exit these bets. That causes the euro to rise as the borrowed money comes home. 
But if risks fall, so does the euro.
So if final deal between Greece and its creditors is reached, then the Euro will fall; but if not, it will rise.


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