Dollar Carry Trade

Categories: Investing and Trading, Forex,

A form of investing that features borrowing a lower interest rate currency such as the dollar, and investing it in a higher yielding currency or bond. This practice has come about since the U.S. federal reserve decided to lower interest rates to near zero in an effort to stimulate economic growth. The effect of the Fed's zero interest rate policy has allowed commodity and equity markets to rise, stimulated by investor's ability to borrow dollars cheaply and invest in asset classes that are rising in value and currencies with a higher yield. When and if the Fed decides to raise dollar interest rates, it may become advantageous to borrow using another currency, shifting the carry trade.