This article first appeared on GuruFocus.
The dollar is regaining its shine as global investors rediscover its yield power. After months of Sell America talk and a bruising 7% slide in the Bloomberg Dollar Spot Index its steepest in eight years the greenback has quietly climbed back about 3% from September lows. Bloomberg data shows a simple strategy of borrowing in low-yielding currencies like the yen or Swiss franc and parking the proceeds in dollars could outperform the risk-adjusted returns of European stocks or Chinese government bonds. JPMorgan Private Bank strategist Yuxuan Tang said the dollar will end up being one of the highest carry currencies again, noting that both directional and carry factors still favor a stronger dollar.
This renewed carry momentum is unfolding just as investors question how long the AI-fueled stock rally can last. The S&P 500 (SPY) has surged more than a third since April, yet the U.S. equity risk premium the spread between the S&P 500’s earnings yield and the 10-year Treasury yield has turned negative. On a volatility-adjusted basis, Bloomberg’s data suggests investors could earn roughly 0.54% through dollar carry trades for every point of volatility, compared to just 0.23% in Chinese equities. That difference could explain why global money is quietly shifting back toward dollar-denominated assets. During Tuesday’s Asian session, the Bloomberg dollar gauge rose about 0.1% as regional equities slipped, showing how sentiment may be pivoting toward safer carry returns.
Still, the bullish carry trade has its caveats. A faster pace of Fed rate cuts could erode the dollar’s advantage, especially if the incoming Fed chair signals a more aggressive easing stance. Deutsche Bank’s Jacky Tang believes the dollar could remain an appealing carry asset in the near term, though he flags uncertainty around 2026 policy shifts. Inflation of 3% in September still above the Fed’s 2% goal could temper how quickly rates fall, preserving the carry trade’s yield buffer. Wells Fargo strategist Aroop Chatterjee said dollar carry trades may continue to look attractive as long as the macro and market backdrop remains resilient, suggesting dollar bulls might have more room to run into next year.
