Dollar-Funded Carry Trades Enjoy Longest Winning Streak Since 2008
The oldest trick in currency trading has seen its best run since 2008. Dollar-funded carry trades, where investors borrow US dollars to invest in higher-yielding emerging-market currencies, have posted an 18% gain in 2025, the strategy's best annual performance since 2009.
According to Bloomberg's eight-currency index tracking these trades, this result is rare and usually occurs when everything aligns: wide interest-rate differentials, calm markets, and a weakening funding currency.
The momentum has carried into 2026, with the index up 1.3% year-to-date as of late January.
One notable data point is the volatility picture. Emerging-market currencies have shown lower volatility than G7 currencies for nearly 200 consecutive days, a streak that would be the longest since 2000 if maintained.
Major institutions like Morgan Stanley and Bank of America attribute the rally to favorable macroeconomic conditions, specifically interest-rate differentials and sustained capital inflows into emerging markets.