London/New York, 11 November 2025 – A growing wave of carry-trade activity, borrowing in the U.S. dollar to invest in higher-yielding currencies and assets, is now being positioned to potentially outpace what has been a buoyant global equity market, according to analysts. The shift reflects changing expectations around the Federal Reserve’s policy path combined with structural trends in emerging-markets currencies.
Why the Dollar-Carry Trade Is Gaining Traction
- With the U.S. dollar showing signs of softness and global yields staying elevated, borrowing costs in dollars remain comparatively low, creating a fertile environment for currency-carry strategies.
- A Bloomberg index tracking dollar-funded carry trades into several emerging-market currencies has posted double-digit gains this year, improving the return profile of the strategy.
- By contrast, global equities are increasingly seen as vulnerable to higher valuations, concentrated leadership, and rising geopolitical & macro risks. This is making carry trades comparatively more attractive to some investors.
Implications for Investors & Asia-Pacific Markets
- Diversification opportunity: For portfolios heavily exposed to equities (especially in Asia-Pacific), carry strategies offer a non-stock-correlated return stream, potentially reducing overall risk.
- Currency risk spotlight: While carry trades can generate strong upside, they also carry significant currency-risk and funding-risk, particularly if the dollar reverses or volatility spikes.
- Emerging markets benefit: Currencies such as the Indian rupee, Indonesian rupiah and Brazilian real have already been favoured in carry positions; the trend highlights their role in the “new carry” playbook.
- Macro‐policy watch: Investors will closely track the Fed’s next moves. A surprise pause or cut in rates could further spur the dollar’s decline, fueling carry trades; conversely, a hawkish surprise could reverse the sentiment.
Risks Ahead
- A sharp rebound in the dollar would amplify losses for carry-funded investors and could trigger rapid unwinds.
- Rising global risk aversion (credit stress, inflation spikes, supply-chain shocks) could shift flows away from high-yielding currencies back into safe-haven assets like the dollar and U.S. Treasuries.
- Execution matters: Not all carry trades are alike. Investors must differentiate between sustainably high-yield currencies (with credible fundamentals) and volatile ones exposed to external shocks.
