Dollar Slips After G20 Back Ongoing Stimulus

PAN PYLAS

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 of addressing the weakness of the U.S. currency.

At the meeting in St. Andrews, Scotland, the finance ministers pledged to keep up expensive stimulus spending and low interest rates "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 — to finance riskier but more potentially more lucrative investments such as stocks and emerging market currencies. When the borrowed dollars are sold to make the investments in another currency, it pushes the dollar's exchange rate down.

According to New York University economist Nouriel Roubini, developments in financial markets, particularly the sharp rise in stocks since March, have been fuelled 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."