Carry Trade Roars Back to Multi-Year Highs, Goldman Sachs Warns
The currency carry trade that triggered a major 2024 market meltdown has returned stronger than ever, according to Goldman Sachs.
The currency carry trade — the hedge-fund strategy widely blamed for a jarring global market blowup in 2024 — has staged a dramatic comeback and now sits at its largest scale in years, Goldman Sachs says. The resurgence raises fresh questions about whether markets are once again exposed to the same kind of snap-back risk that rattled investors just months ago.
The carry trade works by borrowing in low-interest-rate currencies and deploying that capital into higher-yielding assets elsewhere, pocketing the interest-rate differential as profit. When the strategy unwinds — often abruptly — it can trigger cascading selloffs across stocks, bonds, and currencies simultaneously, as traders scramble to cover positions in a crowded exit.
Read more Dow Jones Top Gainers and Losers: Friday Session Movers →
Goldman's warning lands at a sensitive moment for global markets already navigating elevated volatility, geopolitical uncertainty, and shifting central-bank policy expectations. A carry trade of this magnitude concentrates systemic risk in ways that are difficult to detect until the unwind is already underway, making it a concern not just for sophisticated hedge funds but for ordinary investors exposed to international equities and risk assets.
The 2024 episode served as a stark reminder of how quickly momentum-driven currency strategies can reverse. At the time, a surprise policy shift by the Bank of Japan sent the yen surging, forcing carry-trade players to dump assets globally and sparking one of the sharpest single-day market drops in recent memory. With the trade now reportedly even larger, analysts warn the potential damage from any comparable trigger could be proportionally greater.
Continue reading at MarketWatch.com
