ECB's president says currency markets should be aware of two-way risks

BY

European Central Bank president Jean-Claude Trichet issued a warning on the use of carry trades in foreign exchange markets, saying that markets should be aware of "two-way risks".

Carry trades are where investors borrow in low-yielding currencies such as the yen in order to invest in higher-yielding assets elsewhere, and are considered to be risky trades that could suddenly unwind. Such trades have been very popular recently, causing the yen to fall to several-year lows against several currencies and to reach record lows against the euro.

"We believe the Japanese economy is on a sustainable path and that foreign exchange rates should reflect that," Trichet said at a meeting of euro zone finance ministers here.

"Currency markets should be aware of the two-way risks," he said.
On the recent strong rise of the euro, Trichet reiterated that "excessive volatility and disorderly movements are undesirable".

He also reiterated the message at last week's G7 meeting in
Washington that a strong dollar is still considered to be in the
interest of the US.

lilyz206

Thanks!