Dollar Falls to 15-Month Low: "mother of all carry trades."

G-20 is using the dollar as carry trade until the recovery is assured. Then what? "The dollar is falling for good reason. It’s going to weaken even further.”

Dollar Falls to 15-Month Low as G-20 Pledge Spurs Risk Demand
By Ye Xie and Oliver Biggadike

Nov. 9 (Bloomberg) -- The dollar weakened to a 15-month low against the currencies of major U.S. trading partners after the Group of 20 nations agreed to maintain economic stimulus measures, encouraging investors to buy higher-yielding assets.

The U.S. and Japanese currencies fell against most of their major counterparts tracked by Bloomberg as U.S. equities advanced on the G-20 stance. The euro strengthened versus the greenback after last week’s 0.9 percent gain as Germany’s exports climbed in September more than economists forecast.

“The market is interpreting the very accommodating, very easy policy still in place as a positive sign,” said Stephen Koukoulas, head of global foreign exchange and fixed income in London at Toronto-Dominion Bank, in an interview on Bloomberg Television. “We are going to enjoy this period of easy policy a bit longer. The dollar is falling for good reason. It’s going to weaken even further.”

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners including the euro, yen and pound, dropped 1.1 percent to 74.995 at 10:56 a.m. in New York, from 75.819 on Nov. 6. The gauge touched 74.930, the lowest level since August 2008. The index has lost 7.7 percent in 2009.

http://www.bloomberg.com/apps/news?pid=20602081&sid=a_wbTQbX...

Dollar down again as G20 backs ongoing stimulus
Dollar down again as G20 backs ongoing stimulus, IMF says dollar remains 'on the strong side'
By Pan Pylas, AP Business Writer
7:29 am EST, Monday November 9, 2009

LONDON (AP) -- The euro pushed back up above $1.50 Monday after finance ministers from the Group of 20 rich and developing countries steered clear from addressing the weakness of the U.S. currency against most of its competitors at a meeting over the weekend.

At the meeting in St. Andrews, Scotland, the finance ministers pledged to "continue to provide support for the economy until the recovery is assured" -- in effect telling the markets that borrowing costs will not be rising any time soon.

As a result, investors continued Monday to borrow cheap dollars -- with the Fed funds rate in a range of 0-0.25 percent, the cost of borrowing dollars is anything but prohibitive -- to finance riskier investments, such as stocks and oil. According to economist Nouriel Roubini, developments in financial markets over recent months, particularly the sharp rise in stocks since March, have been characterized by this "mother of all carry trades."

In a note prepared for the meeting, the International Monetary Fund said the dollar was "now serving as the funding currency for carry trades," and that these trades may be "contributing to upward pressure on the euro."

That's certainly been the case Monday, with the euro rising 0.9 percent to $1.5011, the first time it has breached the $1.50 barrier this month.

"The G-20 has given the green light to carry trades to continue," said Neil Mackinnon, global macro strategist at VTB Capital in London.

http://finance.yahoo.com/news/Dollar-down-again-as-G20-apf-4...