The return of interest rate arbitrage makes emerging market currencies an investment hotspot.

[Golden Finance] reports that arbitrage trading is making a comeback among emerging market investors, as the market bets that the Fed will begin cutting interest rates next month, weakening the dollar and boosting interest in high-yield currencies. Asset management institutions such as Loomis Sayles ( Neuberger Berman ) and Aberdeen Group ( are ramping up their positions in currencies of countries like Brazil, South Africa, and Egypt. They believe that the weakening dollar and reduced volatility create a favorable environment for this strategy. In this strategy, traders borrow lower-yielding currencies and 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, disappointing U.S. employment data has reinforced market expectations that policymakers will have to cut rates next month to avoid a recession, driving the resurgence of arbitrage trading. From DoubleLine to UBS, many institutions have recently joined the bearish dollar camp, stating, "the bearish narrative on the dollar is back in play." Loomis Sayles' co-head of emerging market debt, Urquieta, stated: "The likelihood of a significant rebound in the dollar is very limited, while the overall performance of global economic growth remains robust." He prefers to engage in carry trades in South Africa, Turkey, Brazil, Colombia, Indonesia, and South Korea.