The euro already faces a sea of troubles, but it could confront one more: It is becoming a favorite funding currency of the "carry trade." Analysts at Royal Bank of Scotland Group PLC and French bank BNP Paribas SA expect the euro to suffer at the hands of the carry trade, one of the riskier investment strategies in the currency market. Such trades involve borrowing money in countries such as Japan, where interest rates are low, then investing it where rates are higher and pocketing the difference. Carry trades usually put downward pressure on the currency that is borrowed while turbo-charging the currencies that are purchased. That suggests investors may continue punishing Europe's currency, which already is down 14% against the dollar this year, even if Europe's sovereign-debt jitters abate. "The euro is the clear-cut funding currency of choice," said Alan Ruskin, currency analyst at RBS, in a report this month. "The market senses the mess. Participants understand that monetary union is in a jam." Mr. Ruskin expects the euro to fall to $1.1650 by the end of this year. Monday afternoon in New York, the euro slumped against the dollar and some other currencies, ending last week's rally that saw it climb from a four-year low of $1.2142. Monday, it was trading at $1.2406 from $1.2574 late Friday, and it also was down against the Australian dollar and Canadian dollar. To be sure, investors aren't doing carry trades the way they used to before the crisis. At the height of the boom, calm markets allowed hedge funds to make big bets with borrowed money on relatively small differences in expected interest rates. By contrast, today's carry trades are just bets on the global economic recovery: You invest in, say, Australia or Brazilâcountries rich with commodities that do well when economic growth is strongâand finance yourself as cheaply as possible, usually through Japanese yen or U.S. dollars. It is hard to find actual data proving that investors are doing carry trades or using specific currencies. But last week's swings in the exchange rate between the euro and the Australian dollar, a currency that had been soaring because of its link to fast-expanding China through commodity sales, provide some evidence that investors are using euros to finance bets. "One of the most popular trades in [currency] markets since early 2009 has been to sell the euro versus commodity [currencies], for example, the Australian dollar and New Zealand dollar," analysts at Dutch bank ING Groep NV said in a note Monday. "Last week saw an abrupt reversal of this trend." The euro jumped some 8% against the Australian dollar last week as investors closed out these trades, which meant buying the euro and selling the currencies on which they bet. http://online.wsj.com/article/SB10001424052748704792104575264503678329186.html So, why closing out a "risk free" bet ?