Carry trades profit from investor herding just like momentum strategies. As more and more investors pour money into high-interest currencies and borrow on low-interest currencies, the demand for the former rises. This herding behavior can continue for quite some time, but it comes to a halt when investors are no longer willing to invest in high-interest currencies.
The collapse of interest rates to record lows in the United States, the United Kingdom, the European Union, Switzerland, and Japan has inflicted pain on those who rely on interest income.
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