According to analysts at Danske Bank, USD carry is high and it is set to rise in 2019 and expects its carry to rise more than priced into forwards at present.
Key Quotes
“Not least versus EUR, SEK and NOK, the forward premia in USD terms are now close to or above financial-crisis peaks while there is still some way to go versus JPY to reach the mid-2000 highs.”
“The high USD carry has been a common theme for currency and fixed-income markets in 2018 as the cost of hedging the FX exposure erodes the return of non-USD based investors’ portfolios of USD assets.”
“Multiple factors are behind this, notably the Fed’s interest-rate and balance-sheet policy, but also autonomous drivers of USD liquidity such as derived effects of the US debt ceiling and new financial regulation are to blame. We look for 2019 to bring more of what was seen in 2018.”
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