The Dollar Carry Trade

The dollar has depreciated roughly 10 percent from its recent peak in March 2009, on a broad trade-weighted basis against the currencies of our key trading partners. Many attribute the dollar’s recent decline to a relatively easy U.S. monetary policy that is fueling a dollar carry trade. The dollar carry trade refers to a set of foreign-exchange transactions that seem to exploit an economic anomaly and entail substantial risk. Perhaps that is why some people fear that the carry trade could unwind quickly and pose adverse consequences for global currency markets.