Carry Trade Under Fire as Low Volatility Breeds Complacency

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.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza