LONDON, UK –
FX Carry is Back:
One of the best-known strategies in FX markets is the carry trade, as returns from owning higher-yielding currencies tend to outperform those of lower yielding ones. At the heart of this FX carry trade is the idea that, as diverging economic performance is reflected in widening interest rate differentials, so currencies of stronger economies will strengthen. An advanced version of FX Carry forms part of the multi-strategy European and Global Advisers LLP EGA Systematic Alpha UCITS Fund.
However, from 2011 to 2022 this strategy struggled, as interest rates in G10 currencies converged towards zero (see chart#1 below). As rates normalise from the extraordinarily low levels of the previous decade, we believe that the FX carry trade could be interesting again.
The impact of the changing interest environment is illustrated in the FX carry performance chart#2 below, with yield convergence meaning that an FX carry strategy produced little return over a 10 year period. But since the end of 2022, the FX carry trade is profitable again, as interest rates rose in most major currencies (Japan being a notable exception).
Even more importantly, our quant research partners at C8 Technologies see a wider divergence in economic performance across the G10 going forward. This will drive increasing divergence in interest rate trends amongst the major economies, a key component for the success of the carry trade. Indeed, the ECB, Bank of Canada, Swiss National Bank and Swedish Riksbank have already cut rates from their highs so far this year, whilst expectations have risen that rates will be increased further at the Reserve Bank of Australia.
About Zetta Capital Limited
An independent and experienced quantitative research and distribution company that specializes in the application of new and interesting datasets and novel strategies to asset management. Built around an independent research team dedicated to providing unique, curated, actionable liquid alternative solutions for our clients. Zetta draws upon the resources and experience of C8 and counts among its research personnel former senior executives of BlueCrest and Morgan Stanley.
About European and Global Advisers LLP
EGA LLP (www.egallp.com) was formed in 2011 as an independent, privately owned, investment boutique to provide specialist, niche market funds for institutional investors and professional investors as well as advisory firms and their clients. EGA manages investment funds, provides investment advisory services and develops investment strategies for banks, asset managers and family offices. All in one service offered via entities in the UK, Ireland and Europe. Since 2021 new partners have added multiple new investment strategies. The Firm now manages several UCITS Funds.
About C8 Technologies
C8 is a fintech company that believes in empowering its clients through technology, giving users the freedom to choose, combine and trade strategies sourced from its platform.
C8 Technologies was established in 2017 in London by Mattias Eriksson and Ebrahim Kasenally, previously partners and senior executives at BlueCrest Capital Management – one of the largest global alternative investment management firms. C8 combines decades of investment research with experience in innovative trading technology. For more information about C8 Technologies, please visit www.c8-technologies.com.
For additional information, please visit Zetta Capital’s website at www.zettacapital.com
London Office: 184-186 Regent Street, London, W1B 5TW, United Kingdom
Contact: Jonathan Dagg, +44 (0) 20 8126 8585, info@zettacapital.io
