The expectation of a Fed rate cut is rising, and arbitrage traders are increasing their bets on emerging markets.

[Fed interest rate cut expectations rise, arbitrage traders increase bets on emerging markets] Spread trading is making a comeback among emerging market investors as the market bets that the Fed will start cutting rates next month, weakening the dollar and boosting interest in high-yield currencies. Asset management firms from Luminus ( Neuberger Berma ) to Aberdeen Group ( are ramping up positions in currencies of countries like Brazil, South Africa, and Egypt. They believe that the weakening dollar and alleviated volatility have created a favorable environment for this strategy. In this strategy, traders borrow lower-yielding currencies to buy higher-yielding currencies. Earlier this year, such trades recorded double-digit returns but were 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 a recession, driving renewed interest in arbitrage trading. From DoubleLine to UBS, many institutions have recently joined the bearish dollar camp, stating that "the bearish dollar narrative is back on stage." Luminus Emerging Market Debt Co-Head Urquieta said, "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 conduct carry trades in South Africa, Turkey, Brazil, Colombia, Indonesia, and South Korea. ) Jin10 (