Widespread expectations interest rates would stay lower for longer have spurred traders to chase “carry trades” funded by low-yielding currencies, but some analysts warn that’s no longer a safe bet.
The Federal Reserve meeting’s dovish outcome last week shifted sentiment in favor of continuing the carry theme, but “we are increasingly uncomfortable with the carry complacency being bred by the current low volatility environment,” Deutsche Bank said in a note Friday.
Although the Fed continued to step away from quantitative easing at its last meeting, trimming asset purchases by another $10 billion to $35 billion a month, it set a more-dovish-than-expected tone and lowered the long-term interest rate target.
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