Barclays Plc strategists expect Group-of-10 currency volatility to rise and remain elevated as the dollar strengthens and interest-rate swings increase. Realized volatility has yet to catch up with higher levels priced into currency options, though Barclays expects that gap to narrow.
Even if the dollar’s rally pauses because investors are already heavily positioned for further gains, “we would expect the probability of an increase in FX vol to drop only in the very near term,” Barclays strategists Marek Raczko and Leonardo Crimella wrote in a Tuesday note.
Higher currency volatility creates an “unfavorable environment” for carry trades, which seek to profit from differences in interest rates. The strategies have begun to underperform after delivering strong returns since the US announced sweeping tariffs in April 2025. Returns relative to volatility have fallen for most carry currencies since the end of August, the strategists said.
Barclays expects any increase in currency volatility to persist and cautioned against betting on a rebound in carry currencies following sharp selloffs. “We do not see value in chasing global carry trade,” the strategists said, warning that emerging-market currencies are likely to reprice.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing