【Federal Reserve's interest rate cut expectations rise, arbitrage traders increase bets on emerging markets】Golden Finance reports that spread trading has made a comeback among emerging market investors, as the market bets that the Federal Reserve will begin cutting interest rates next month, leading to a weakening of the dollar and boosting interest in high-yield currencies. Asset management institutions such as Neuberger Berman and Aberdeen Group are increasing their positions in currencies of countries like Brazil, South Africa, and Egypt. They believe that the weakening dollar and easing volatility create a favorable environment for this strategy. In this strategy, traders borrow lower-yielding currencies to buy higher-yielding ones. Earlier this year, these types of trades recorded double-digit returns, but paused in July due to the dollar's rebound. Recently, poor U.S. employment data has strengthened market expectations that policymakers will have to cut rates next month to avoid an economic recession, driving arbitrage trading to heat up again. From DoubleLine to UBS, many institutions have recently joined the camp bearish on the dollar, stating that “the bearish narrative for the dollar is back on stage.” Neuberger Berman's co-head of emerging market debt, Urquhart, stated: “The likelihood of a significant rebound in the dollar is very limited, and the overall performance of global economic growth remains robust.” He prefers to engage in carry trades in South Africa, Turkey, Brazil, Colombia, Indonesia, and South Korea. (Golden Ten)
