Explain why a “strengthening dollar” would negatively affect the outcome of carry trades
Please read the article on the Emerging Markets Carry TradEmerging-Market Carry Bets Declared ‘Dead’ on Strong Dollare. Keep in mind that the article is mainly referring to carry trades, and not covered carry trades. Please:
Explain why a “strengthening dollar” would negatively affect the outcome of carry trades.
If a trader was participating in a “covered carry trade” (forward foreign exchange rate locked in) would the “strengthening dollar” have the same negative outcome on that position? Why or why not?