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European Currencies Rise

The dollar does gain ground against the yen.

The major European currencies were rallying Wednesday on the renewed belief that future actions by central banks will make the greenback less attractive to investors relative to euros and pounds.

One pound Sterling was buying $2.0158, up from $2.003 late Tuesday. The euro was trading for $1.3644, up from $1.3609 a day earlier.

"The conviction is growing in the market that the

Federal Reserve

is going to cut interest rates, while it's looking like the European Central Bank and the Bank of England will at worst stay on hold," says Naomi Fink, a senior currency strategist at BNP Paribas in New York.

Such a scenario would mean the returns from holding dollars would fall when compared with the interest received from investing in euros or British pounds.

There is also a distinct possibility that the Bank of England may in fact raise its short-term borrowing rates, thus amplifying the effect, adds Fink.

Elsewhere, dollars were selling for 114.96 yen, up from 114.39 yen previously, as more carry trades unwound. The carry trade involves selling short a low-yielding currency such as the yen and profiting by purchasing higher-yielding money. Recently, nervous investors have been undoing those trades, thus bidding up the yen.


PowerShares DB G10 Currency Harvest

(DBV) - Get Invesco DB G10 Currency Harvest Fund Report

, which seeks to benefit from the carry trade, was edging ahead 0.1% recently.

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CurrencyShares British Pound Sterling Trust

(FXB) - Get Invesco CurrencyShares British Pound Sterling Trust Report

, which tracks the value of the pound, was ahead 0.7%, while the

CurrencyShares Euro Trust

(FXE) - Get Invesco CurrencyShares Euro Trust Report

, which tracks the euro, was up 0.3%.


CurrencyShares Japanese Yen Trust

(FXY) - Get Invesco Currencyshares Japanese Yen Trust Report

, a tracker for the Japanese currency, was losing 0.5%.

In other currencies, the Australian dollar was steady at $0.816.