The carry rush across the market is still running hot, and big investors think the momentum is not slowing as 2026 gets closer.
They point to a year where low FX swings and a weaker US dollar created easy ground for borrowing in cheap currencies and moving into higher-yield ones, with a 17% return for the strategy this year, the strongest since 2009.
Asset managers and banks like Vanguard, Invesco, Goldman Sachs, and Bank of America expect the rate gap between rich economies and emerging countries to stay wide next year. They also expect the Federal Reserve and other large central banks to keep borrowing costs low.
The US dollar has already fallen more than 7% in 2025, and many investors say that slide helps keep the carry engine running.
Investors push into high-yield currencies
This year gave investors several strong carry choices as emerging-market stocks, bonds, and currencies posted broad gains. Brazil and Colombia stood out.
Both kept benchmark interest rates at high levels, and both saw their currencies jump more than 13% against the dollar.
The future path, though, depends heavily on the US economy. Investors want slower growth that pushes the Fed to keep cutting rates, which would weaken the dollar further. A recession could trigger a rush out of risk, while a hot economy could revive talk of higher US rates.
“With a weakening US dollar, carry should remain a source of return,” said Wim Vandenhoeck of Invesco. He expects strength in the Brazilian real, Turkish lira, and South Africa’s rand.
On a Goldman Sachs podcast, Brian Dunne said shorting the dollar against the real, rand, and Mexican peso had been a strong call. An equal-weighted basket of that trade gained about 20% this year.
Invesco sold the dollar against the rand and sold the euro against the Hungarian forint, with that position returning around 11% in 2025, including carry. Bank of America pushed into the real versus the Colombian peso, a rate-gap play that earned more than 2%.
Traders track volatility risk into 2026
Another key question is whether FX swings stay calm. Carry trades depend on stable currencies because sharp moves can erase months of returns. Right now, expectations for swings are low.
A JPMorgan gauge of emerging-market currency volatility for the next six months sits near its weakest point in five years. That calm worries some traders who think a rebound is due. “Volatility is very low in a lot of places,” said Francesca Fornasari of Insight Investment. “That’s my only worry, that the benign story is to some degree in the price.”
Bank of America strategist Adarsh Sinha pointed to the US midterm elections and different rate paths across central banks as possible drivers of higher FX moves in the coming months. Even so, the turmoil sparked by President Donald Trump’s tariff announcement in April has faded.
Vanguard said the shock should stay contained next year. “We don’t see enormous bouts of volatility associated with policy instability or recessionary risks,” said Vanguard.
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