Foreign Currency - Carry Trade

One of the more popular trading strategies in forex involves the carry trade.  That is, borrowing currency that has a low interest rate to buy currency with a higher one.  Coupled with high leverage and time, this can be a very profitable exercise.   Currently, foreign currencies with a high rate of interest include the British Pound (GBP), the New Zealand Dollar (NZD) and the US dollar (USD). Those currencies with a low interest rate at the time of this writing include the Japanes Yen (JPY) and the Swiss Franc (CHF).

Recently, the Bank of Japan raised the short-term interest rate on the JPY, leaving traders speculating that the Yen carry trade may be over.  However, comments made by the BoJ reassured forex traders that any further rate increases would be gradual and slow. This reassured fx traders and the yen carry trade has remained a viable forex trading strategy.