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Classic Models Are Failing FX Hedge Funds Desperate for Return

  • Momentum, fair value and carry strategies flounder this year
  • Hedge funds risk facing abysmal currency returns again in 2017
Photographer: Andrew Harrer/Bloomberg
Updated on

It was supposed to be the year of the great comeback for currency traders. After all, didn’t Donald Trump reignite the animal spirits of financial markets by promising a slew of growth-boosting reforms?

It turns out currency managers feel more powerless than emboldened. Most of the strategies traders use to generate profit -- momentum, carry and fair value -- have either lost money or nearly erased their gains this year, according to Deutsche Bank AG models. Buying the dollar, which became a popular momentum- and carry-style trade based on the prospect of fiscal stimulus and higher interest rates, has flopped in the face of scant U.S. policy details and the possibility that Europe and Japan may soon follow the U.S. and exit quantitative easing.