In a carry trade, an investor borrows in a low-interest currency and invests the proceeds in higher-yielding assets.
According to CME’s FedWatch tool, markets are currently pricing in a 100% chance that the Federal Reserve will cut interest rates by 50 basis points in September.
“U.S. wage inflation is slowing in a way not seen in other market economies,” economists at the Wall Street brokerage said in a note Wednesday.
“The easing of labor market conditions increases confidence both that service price inflation will move lower and that the Federal Reserve’s current monetary policy stance is restrictive,” they added.
JP Morgan expects the Fed to “break with gradualism” and lower interest rates by at least 100 basis points by the end of the year.
Goldman Sachs has raised its probability of the United States entering a recession by 10 percentage points to 25% over the next 12 months, the brokerage said in a note to clients on Sunday.
