Carry trades lift dollar to 6-week peak against yen

The dollar surged to a 1-1/2-month peak of 114.16 yen, The Aussie surged nearly 1.0 percent to US$0.8669, while the Kiwi dollar gained 0.6 percent to US$0.7638

The dollar climbed to six-week peaks against the yen on Friday as investors waded back into carry trades amid a rally in U.S. stocks, but the greenback slipped versus the euro on profit-taking after recent gains. The Dollar is trading around the levels of 1.4380 against the Euro, around the levels of 114.05 against the Yen and around the levels of 1.9835 against the sterling.

U.S. stocks rose sharply as strong earnings from Research in Motion boosted the technology sector and news of an overseas investment in brokerage giant Merrill Lynch supported financial shares. A Wall Street Journal report of a possible $5 billion capital infusion for Merrill by Singapore state investor Temasek Holdings helped ease concerns about risk, which have been fueled by troubles in the U.S. subprime mortgage sector. The move prompted investors to sell the low-yielding yen again and buy high-yielding units in carry trades. "U.S. stocks are doing well, so we're seeing a rally in dollar/yen and the return of carry trades," Reported by ‘Finotec’ dealing desk. We have broken 113.80 yen on the upside and if U.S. stocks continue to rally, then I see no reason why dollar/yen could not hit 117, 117.50," added.

The improvement in the risk environment boosted high-yielding currencies such as the Australian and New Zealand dollars. The Aussie surged nearly 1.0 percent to US$0.8669, while the Kiwi dollar gained 0.6 percent to US$0.7638. The dollar surged to a 1-1/2-month peak of 114.16 yen , and by late afternoon trade was at 114.07, up 0.9 percent on the day. The euro rose to a one-week high at 163.94 yen, but last traded at 163.72 yen, up 1.1 percent. Volumes, however, were thin, with most traders winding down for the year.

Pound was slightly down against the dollar at $1.9816. Sterling hit an all-time low against the euro on expectations that UK interest rates may be cut as soon as next month. The euro rose as high as 72.56 pence, but traded down to 72.42, still up 0.3 percent.

For the next two days the economic calendar is empty due to holidays around the globe. Over the next two weeks, some analysts, say December data should confirm that the United States has not slipped into a recession.