Why are the carry trades related with the US stock markets? I've read from many analysts that losses in the DOW Jones have caused the revaluation of the Yen. What goes through the minds of the investors for this to happen?
Joined Jul 2006
Status: Smart Spender
The carry trade is considered rather an unsafe investment at the moment, because of all the uncertainties surrounding it, because of all the talks about the carry unwinding, etc. The stock market is also considered a rather risky investment, when comparing it to government bonds for example.
So the carry trade and the stock market are related in investor's mind by the risk factor, which is considered pretty high. When the DOW starts to go down, investors reconsider their portfolios and try to eliminate risk.
Also, in times like this when the dollar weakens it's a good thing to look at the precious metals markets, because investors go there to hedge losses in the dollar. Look at the USD/JPY, it started falling on June 25th. Now look at gold (XAU/USD) - it started rising on June 26th.