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ECB Out-Doving Fed Boosts Euro’s Allure as Carry Trade Funder

  • Rate to borrow euro instead of dollar near cheapest this year
  • Taper may start this year, Powell said in Jackson Hole speech
A cargo barge on the River Rhine near the European Central Bank (ECB) headquarters in Frankfurt.

A cargo barge on the River Rhine near the European Central Bank (ECB) headquarters in Frankfurt.

Photographer: Alex Kraus/Bloomberg

Jackson Hole sharpened the contrast between a Federal Reserve telegraphing an end to stimulus and a dovish European Central Bank. For the euro, that means its status as a preferred funding currency just got a boost.

The discount on the overnight rate to borrow the common currency instead of dollars rose earlier this month to the most since 2020. That juiced up returns on carry trades funded by the euro, which have been some of the best performers this year.