Major currencies stay range-bound as low volatility supports carry trades

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Major currencies range-bound

Highlights

Major currencies including the euro, sterling, and Canadian dollar remain confined to narrow ranges, with euro-dollar on pace for a record-tight band since mid-2025.
Low foreign exchange volatility continues to support carry trade strategies, as confirmed by Goldman Sachs, even amid economic uncertainty and policy shifts.
U.S. equity market breadth narrows as technology regains leadership, with 392 S&P 500 stocks down since August 18 and energy stocks pressured by a sharp oil drop.

Currency calm persists across major markets

As reported by Financial Times, major currencies are largely holding in tight ranges even as investors navigate inflation, trade tensions and policy shifts. Deutsche Bank says that if the euro stays within the $1.13 to $1.20 band it has occupied since mid-2025, the euro-dollar pair will post its tightest range on record for the world’s most actively traded currency pair.

The euro is drawing support from inflows, but the broader lack of movement stands out more sharply. Sterling is showing little sign of stress in foreign exchange markets despite wider concerns over the UK, while the Canadian dollar is also relatively steady even as Canada remains locked in a trade and diplomatic dispute with the U.S.

Among major currencies, the Japanese yen is seeing the most notable action, though its decline is still described as orderly. Goldman Sachs analysts say foreign exchange is likely to remain in a low-volatility regime across a range of economic scenarios, a backdrop that continues to favor carry trades built on selling low-rate currencies and buying higher-yielding ones.

Tech regains leadership as market breadth narrows

The same period of muted currency trading is unfolding alongside an uneven U.S. equity market. Although the S&P 500 has moved broadly sideways in recent months, only healthcare, energy and financials have managed to rise across that stretch, highlighting the market’s limited leadership before a more recent shift.

Over the past month, leadership has moved decisively back to technology while healthcare and financials have lost momentum. Since August 18, 392 stocks in the S&P 500 are down, pointing to a thinner market even as tech outperforms.

Monday’s market action adds to the sense that positioning may be changing. Oil drops sharply, energy stocks come under pressure and technology shares rally strongly, a combination that suggests a possible turning point even if single volatile sessions do not always mark a lasting shift.

In our earlier article on the yen-funded carry trade, we explained how the strategy has become more vulnerable to abrupt reversals as the yen weakens and monetary policy shifts. We also noted that larger exchange-rate swings, geopolitical tensions and uncertainty around Japan’s policy path are raising hedging needs and increasing the risk of losses for traders relying on yield differentials.

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