Dollar Carry Trade Records 18% Profit in 2025, 1.3% Increase in Early 2026

The carry trade, which involves borrowing dollars to invest in high-yield emerging market currencies, recorded an 18% return in 2025 and continued to rise by 1.3% in early 2026. The weak dollar, interest rate differentials, and low volatility have created a favorable environment for investing in emerging market currencies. According to Bloomberg, an index tracking the returns of eight emerging market currencies rose by 18% in 2025 and was up 1.3% as of the end of January 2026 compared to the beginning of the year. The New York Federal Reserve reported in its foreign exchange report published on August 13 that the dollar was weak against the Chinese yuan and several high-yield emerging market currencies. The carry trade is a strategy that involves funding at low costs to invest in currencies or bonds that offer higher yields. The Federal Reserve maintained its target range for the federal funds rate at 3.50% to 3.75% as of July 29. The conditions for profit in the carry trade improve when the dollar is weak, but expectations for rising U.S. interest rates could increase funding costs and exchange rate pressures. The crypto market is influenced by dollar liquidity and risk asset preferences, with major assets like Bitcoin and Ethereum responding sensitively to these factors. Institutional views are mixed; while Morgan Stanley and Bank of America see the potential for a rally extension, Reuters pointed out that an influx of funds could lead to instability in trading.

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