A hedge-fund trade blamed for a massive market blowup in 2024 has made a big comeback, Goldman Sachs says

Goldman Sachs says the 2024 currency carry trade has rebounded and is now larger than in many years, becoming more relevant to broader markets than at virtually any point since 2000. The trade—borrowing low-rate currencies and investing in higher-rate ones—resumed after a summer 2024 blowup that roiled global stocks. This shift suggests improving risk appetite, though it also raises sensitivity to future FX and rate moves.

Analysis

A larger carry complex usually means the market is being financed off short-vol, low-rate funding and rotated into higher-beta assets. That is supportive for dealers with FX/options flow franchises like GS in the near term, because sustained positioning keeps client hedging demand alive even if spot volumes look quiet. The bigger implication is not the trade itself but the leverage embedded behind it: once funding currencies or rate differentials stop cooperating, correlations can jump across equities, credit, and EM FX in a matter of days.

The first-order winners are the brokers and market-making desks that intermediate the positioning; the second-order winners are the usual carry destinations — high-dividend equities, EM debt, and momentum factor sleeves that are effectively borrowing stability. The losers on an unwind are higher-beta, higher-duration assets with weak balance sheets: EM importers, unprofitable tech, and small caps that rely on cheap funding and benign dollar conditions. If the dollar strengthens or global rates reprice higher, the unwind would likely show up first as widening cross-asset vol rather than a clean single-market signal.

The contrarian point is that the consensus may be treating this as a durable risk-on backdrop when it is really a crowded trade with hidden convexity. The fact that carry is back to multi-decade significance suggests low realized vol may be a byproduct of leverage, not calm; that is typically a late-cycle condition. Watch for a 2-4 week trigger set by a central-bank surprise, a sharp equity drawdown, or a spike in funding stress — any of those would force de-grossing and reverse the trade far faster than fundamentals alone.

Key Decisions for Investors

• Long GS vs. S&P 500 financials for the next 1-3 months: carry/FX complexity should support trading revenue and client hedging demand; target modest outperformance, but cut if implied vol rolls over and FX activity fails to pick up.
• Buy a tactical long in UUP or FXY as an unwind hedge over the next 2-6 weeks: if carry unwinds, the dollar or yen should benefit quickly; risk/reward is attractive because the payoff is convex on a volatility spike.
• Short EEM against a long UUP hedge for 1-3 months: crowded carry exposure tends to hit EM equities and FX together in de-grossing events; this is a cleaner expression than a naked equity short.
• Reduce exposure to high-beta, funding-sensitive equities (ARKK, IWM) into strength over the next 1-2 weeks: the trade works until it doesn't, and these are the first names to gap lower if funding conditions tighten.
• Set an alert on a sudden 1-week jump in FX vol or a 1-2% move higher in the dollar: that would be the earliest falsifier for the risk-on carry setup and the point to monetize hedges aggressively.