FX Carry Trades Gain on ECB’s Negative Rates

ECB’s move suggests volatility will remain low, a situation that supports carry trades.

Mario Draghi is becoming one of currency traders’ only friends.

With the $5.3 trillion-a-day foreign-exchange market poised to deliver its worst first-half returns on record, the carry trade is about the only way traders are making money by exploiting differences in global borrowing costs as volatility tumbles. That strategy became more profitable after the European Central Bank president cut interest rates on June 5.

Louder Warnings

By plowing back into carry trades, dealers are ignoring the warnings of policy makers, as well as some strategists.

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