By Makailah Gause

NEW YORK (Reuters) - The average rate on the popular U.S. 30-year mortgage rate fell to 6.73% this week, its lowest level since February as the bond market reacted to signs of cooling inflation.

The 30-year fixed-rate mortgage was 5 basis points lower than a week earlier when it averaged 6.78%, mortgage finance giant Freddie Mac said on Thursday. It averaged 6.90% during the same period a year ago.

"Apprehension in consumer confidence may prevent an immediate uptick as affordability challenges remain top of mind," Chief Economist Sam Khater said in a statement.

But, he said, data showing a moderation in home price growth and increasing housing inventory are positive signs for prospective home buyers.

House prices increased 5.7% year-on-year in May, the smallest annual increase in 10 months as still-high mortgage rates then kept a lid on demand, the Federal Housing Finance Agency said Tuesday.

More recently, though, pending home sales surged 4.8% in June from a month earlier, helped by the recent increase in homes for sale, the National Association of Realtors said on Wednesday.

Still, even with home loan rates now more than 1 percentage point below their peak levels from last year, mortgage application volumes remain subdued.

"Many borrowers may be hoping and waiting for mortgage rates to decline even further, which is what we expect to happen once the Federal Reserve begins to cut short-term rates," Mortgage Bankers Association Chief Executive Bob Broeksmit said in a statement.

If inflation continues to cool, the Fed could cut interest rates as soon as September, Chair Jerome Powell said Wednesday.

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) - Bond investors, expecting the Federal Reserve to hold interest rates steady this week but signal that rate cuts are imminent, are betting that the U.S. Treasury yield curve will become less inverted and eventually return to a normal positive slope.

The strategy involves bullish bets on short-dated Treasuries and reducing longer-dated exposure, a trade referred to as a "steepener" which pushes yields on longer-dated Treasuries higher than short-term maturities. Investors are compensated with a higher yield for taking risk over a longer period.

The widely watched two-year/10-year yield curve has been inverted for two years, the longest inversion in history, with the gap in yield at minus 22 basis points (bps).

With the focus on the yield curve, the Federal Reserve is widely anticipated on Wednesday, at the end of its two-day policy meeting, to keep its benchmark overnight rate in the 5.25%-5.50% range for an eighth straight meeting. Investors expect a "dovish hold" from Fed Chair Jerome Powell's press conference at the end of the meeting, in which he is likely to signal that rates will be lowered as soon as September for the first time in more than four years.

Powell also has the Jackson Hole gathering of central bankers in late August to prepare the market for a rate cut. By then more data on inflation and this Friday's July employment report could give policy makers the confidence they seek.

The rate futures market has priced in about 68 bps of total cuts this year starting in September, LSEG calculations showed, a big jump from 30 bps just before the June meeting. Roughly three more cuts of 25 bps each are expected by June 2025.

In the Fed's June rate forecasts the central bank had penciled in just one cut in 2024. Easing U.S. inflation and a gradually slackening labor market have prompted a shift in rate expectations.

"The yield curve moved a significant amount in the last six weeks, but we are at these levels in October last year and it still comes down to an inverted curve, which is not normal," said Greg Wilensky, head of U.S. fixed income at Janus Henderson Investors, with assets under management of $352.6 billion.

"We're going into a situation where the curve moves to a normal positive slope. There is plenty of room for it to go."

BULL STEEPENERS

The spread between two-year and 10-year yields has narrowed by 30.4 bps since late June. The curve the last few weeks has mainly seen "bull steepeners," where short-term yields have fallen more sharply than longer-dated ones, a typical prelude to the Fed's starting an easing cycle.

Investors had bet aggressively in January on a steeper yield curve, as the markets priced in multiple rate cuts for 2024 after a dovish pivot from the Fed in December.

But those bets unraveled and the curve flattened even more as short-term yields surged above long-term ones amid a surprisingly durable economy and pesky inflation.

Going into this week's Fed meeting, investors in the futures market sharply increased net long bets on short-dated Treasuries, such as U.S. two-year notes, while net long positions on longer maturities have not risen as much or have declined. That mirrored bull steepeners that have been in place the last few weeks.

Friday's data from the Commodity Futures Trading Commission showed asset managers last week increased their net long position on U.S. two year notes to a record high.

Asset managers have also remained net long on U.S. 5-year note futures, hitting an all-time peak in mid-July before slipping a bit last week,

"There is an urgency to get into the short end of the curve before yields start to fall in a more pronounced way," said Chip Hughey, managing director of fixed income at Truist Advisory Services in Richmond, Virginia.

Net longs from institutional investors on U.S. 10-year futures were largely flat last week.

"If the Fed starts its cutting cycle without a recession, buying any duration, or any longer bonds, won't necessarily give you the same impact of being on the right part of the curve, like the 2s to 7s," said Mike Sanders, portfolio manager and head of fixed income at Madison Investments in Madison, Wisconsin.

The firm, with $25 billion in assets, is currently overweight U.S. three-year to seven-year Treasuries, reflecting expectations their yields will fall.

Investing.com-- The Bank of Japan raised interest rates by 15 basis points on Wednesday and said it will gradually halve its pace of monthly bond purchases by 2026 as it winds down its ultra-dovish policy and quantitative easing measures.  

The BOJ hiked its benchmark short-term interest rate by 15 basis points to a range of 0.1% to 0.25%. Market expectations were split between a hold and a potential hike of 10-15 basis points.

The central bank said it will reduce its pace of Japanese Government Bond purchases to 3 trillion yen ($19.59 billion) from its current pace of 6 trillion yen by early-2026, in line with general consensus. The BOJ said it will reduce its pace of JGB buying by 400 billion yen each quarter. 

The BOJ’s move to reduce its QE measures was mostly telegraphed by the bank during its June meeting.

BOJ members were seen lowering their outlook for economic growth and inflation in the near-term. A median of BOJ member forecasts for real gross domestic product in fiscal 2024 to 0.6% from 0.8%, and while the outlook for core consumer price index inflation fell to 2.5% from 2.8% for the year. 

Still, BOJ members were seen slightly hiking their outlook for core CPI in 2025, to 2.1% from 1.9%. 

The Japanese yen weakened slightly after the decision, with the USDJPY pair- which gauges the amount of yen needed to buy one dollar- rising 0.3%. Weakness in the yen came as some traders were disappointed with the BOJ’s extended timeline in winding down its QE measures, as well as its soft near-term outlook for the Japanese economy.While consumer confidence increased this month from June's revised level, buying intentions over the next six months fell across the board. The share of consumers planning to buy a house was the lowest since February 2013.

That suggests a strong housing market rebound is unlikely even as mortgage rates have retreated after surging in spring and house price inflation is slowing.

A third report from the Federal Housing Finance Agency showed house prices increased 5.7% year-on-year in May, the smallest gain in 10 months after rising 6.5% in April.

"It will take until 2025, or even 2026, for the market to become better balanced," said Thomas Ryan, North America economist at Capital Economics.

Wednesday's rate hike comes amid some improvements in Japanese inflation over the past two months, especially as consumer spending improved on stronger wages. This trend furthered the central bank’s forecast that inflation will reach its 2% annual target sustainably, and that monetary conditions will have to tighten accordingly.

This forecast had driven the BOJ’s first rate hike in 17 years in March, where it brought rates into positive territory after nearly a decade of ultra-loose policy. 

Other data released on Wednesday showed some improvement in Japan’s economy, with retail sales rising more than expected in June, while industrial production shrank less than expected. 

Still, the Japanese economy was nursing a sharp contraction in the first quarter of 2024, which raised doubts over just how much headroom the BOJ has to tighten policy further.

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By Lucia Mutikani

WASHINGTON (Reuters) - U.S. job openings fell modestly in June and data for the prior month was revised higher, suggesting the labor market continued to gradually slow and was not in danger of rapidly weakening.

Consumers' perceptions of the labor market are, however, deteriorating. A survey from the Conference Board on Tuesday showed the share of consumers who viewed jobs as "hard-to-get" rising to the highest level in more than three years.

The proportion of those who believed jobs were "not so plentiful" was also the highest since March 2021. A rise in the unemployment rate over the past three months had stoked concerns about labor market weakness and the overall economic expansion.

Federal Reserve officials started a two-day policy meeting on Tuesday and are expected to leave the U.S. central bank's benchmark overnight interest rate in the 5.25%-5.50% range, where it has been since last July.

"The labor market has cooled over the last several months but isn't weak," said Nancy Vanden Houten, U.S. lead economist at Oxford Economics. "However, that's a scenario the Fed wants to guard against, and we expect the Fed to begin cutting rates in September."

Job openings, a measure of labor demand, had dropped 46,000 to 8.184 million by the last day of June, the Labor Department's Bureau of Labor Statistics said in its Job Openings and Labor Turnover Survey, or JOLTS, report.

Data for May was revised higher to show 8.230 million unfilled positions instead of the previously reported 8.140 million. Economists polled by Reuters had forecast 8.0 million job openings in June.

Job openings have been steadily declining since hitting a record 12.182 million in March 2022 as demand moderates in response to the Fed's aggressive interest rate hikes. They are down by 941,000 over the year.

There were 1.20 job openings for every unemployed person in June, down from 1.24 in May. Job openings increased 120,000 in accommodation and food services, while there were an additional 94,000 unfilled positions in state and local government, excluding education.

But there were 88,000 fewer open positions in durable goods manufacturing. Vacancies decreased 62,000 in the federal government. Job openings increased among small businesses with less than 10 employees. They dropped among those with 10 to 49 workers. Medium-sized and large firms reported a decline in unfilled jobs.

The job openings rate was unchanged at 4.9%.

Stocks on were mostly lower. The dollar steady against a basket of currencies. U.S. Treasury yields rose.

DECLINING HIRES

Hires declined 314,000 to 5.341 million. The largest drop in 16 months pushed the hires rate to 3.4%, the lowest level since April 2020, from 3.6% in May. Only businesses with fewer than 10 workers increased hiring.

Layoffs decreased 180,000 to 1.498 million, the lowest reading since November 2022. The labor market slowdown is being driven by reduced hiring rather than layoffs. A loosening labor market adds to subsiding inflation in building the case for a September rate cut. The Fed has hiked its policy rate by 525 basis points since March 2022 to tame inflation.

"June JOLTS estimates continue to point to a stabilization of labor demand in recent months, suggesting, for now, that the labor market is in a 'sweet spot' where demand and supply are well balanced," said Jonathan Millar, an economist at Barclays.

Hiring declined 115,000 in professional and business services and dropped 111,000 in accommodation and food services. It decreased 41,000 in construction. Layoffs were down in nearly all industries, with the exception of retail trade, where they rose 25,000. The layoffs rate dropped to 0.9%, the lowest level since April 2020, from 1.1% in May.

The number of people voluntarily quitting their jobs dropped 121,000 to 3.282 million. Quits fell 64,000 in construction.

The quits rates, viewed as a measure of labor market confidence, was unchanged at 2.1%. A steady quits rates bodes well for subsiding wage pressures and overall inflation.

The lull in resignations was best captured by the Conference Board survey, which showed the share of consumers who reported that jobs were "not so plentiful" rose to 49.9% this month, the highest level since March 2021, from 48.8% in June.

The proportion that viewed jobs as "hard-to-get" increased to 16.0%. That was also the highest reading since March 2021 and was up from 15.7 in June.

The survey's so-called labor market differential, derived from data on respondents' views on whether jobs are plentiful or hard to get narrowed to 18.1 from 19.8 in June.

This measure correlates to the unemployment rate in the Labor Department's monthly employment report. The unemployment rate rose to a 2-1/2-year high of 4.1% in June.

BEIJING (Reuters) - China's manufacturing activity in July shrank for a third month, an official factory survey showed on Wednesday, bolstering expectations Beijing will need to launch more stimulus as a protracted property crisis and job insecurity drag on growth.

The official purchasing managers' index (PMI) fell to 49.4 in July from 49.5 in June, below the 50-mark separating growth from contraction but beating a median forecast of 49.3 in a Reuters poll.

PHILADELPHIA (Reuters) - Vice President Kamala Harris would adhere to President Joe Biden's vow not to raise taxes on middle-income taxpayers and has helped to determine the Biden-Harris' administration's approach to tax fairness, including higher taxes on the wealthy and corporations, U.S. Treasury Secretary Janet Yellen said on Tuesday.

"Vice President Harris has indicated her support for avoiding tax increases for middle-income families. So I believe that's a principle that she would adhere to," Yellen told an Internal Revenue Service event in Philadelphia with Pennsylvania Governor Josh Shapiro, a contender to be Harris' vice-presidential pick.

By Joey Roulette

WASHINGTON (Reuters) - SpaceX is in talks with U.S. and Australian officials to land and recover one of its Starship rockets off Australia's coast, a possible first step toward a bigger presence for Elon Musk's company in the region as the two countries bolster security ties, according to three people familiar with the plans.

Since a Starship rocket made a controlled splashdown for the first time in June in the Indian Ocean, SpaceX has been eager to expand its testing campaign. Successful landings and recovery of the boosters afterward are important elements of the speedy development of the giant and reusable rocket designed to launch satellites to orbit and land astronauts on the moon.

The plan would be to launch Starship from a SpaceX facility in Texas, land it in the sea off Australia's coast and recover it on Australian territory. Getting permission to do so would require loosening U.S. export controls on sophisticated space technologies bound for Australia, according to the sources, who spoke on condition of anonymity.

President Joe Biden's administration already has sought to ease similar restrictions within the AUKUS security alliance, a grouping of the United States, Australia and Britain aimed at countering China.

SpaceX, the U.S. Space Force and the Australian Space Agency did not immediately reply to requests for comment.

Towing Starship, after it has landed in the ocean or on a barge, to a nearby port on Australia's western or northern coasts would be ideal, though more specific plans and locations are still being discussed, the sources said.

The conversations underscore the U.S. determination to help Australia build up its military as a deterrent to an increasingly assertive China in the region.

The proposed SpaceX arrangement would put more trust in a close American ally that for years has sought to expand its space defense program, strengthen civil and military space ties with the United States and stimulate its own space industrial base.

Discussions in recent weeks between SpaceX executives and U.S. and Australian officials have focused on regulatory hurdles in bringing a recovered Starship booster ashore in a foreign country, the sources said. Because the talks are ongoing, the timing of any Starship landing off Australia remained unclear.

The sources said the proposed test-landings likely would be the first phase of a larger future Australian presence for SpaceX that could include launching from a facility on the continent or landing a Starship booster on the ground instead of the ocean, though discussions on those possibilities are in the early stages.

In developing its partially reusable Falcon 9 about a decade ago, SpaceX also made ocean-based test landings before attempting touchdowns on land and atop barges at sea. Falcon 9 is now SpaceX's workhorse rocket, and its first-stage booster has made hundreds of routine landings from space.

A TOWERING ROCKET

Starship is a 400-foot (120-meter) tall two-stage rocket designed to be fully reusable. It represents SpaceX's next-generation rocket system, meant to loft large batches of satellites into space, land NASA astronauts on the lunar surface and potentially ferry military cargo around the world in roughly 90 minutes.

Starship's June test flight was its most successful to date. Starship was launched from Texas toward space on a suborbital trajectory that sent it freefalling at hypersonic speeds back through Earth's atmosphere before reigniting its engines for a soft splashdown in the Indian Ocean, about 90 minutes after launch. Its SuperHeavy booster landed in the Gulf of Mexico.

Previous test flights had ended with Starship disintegrating before a safe landing could be achieved. The June flight has led SpaceX to pursue a new phase of more complicated landing tests, according to multiple people familiar with the campaign.

The U.S. Air Force Research Laboratory's conceptual "Rocket Cargo" program envisions using suborbital rockets to swiftly deliver military cargo around the world in 90 minutes, called point-to-point delivery. Some at the Pentagon viewed the June Starship test launch as a crucial demonstration of this program, according to U.S. defense officials.

A Starship launch from Texas and landing off Australia could further demonstrate point-to-point delivery.

While still in an early phase, the delivery time for rocket-based cargo around the planet - taking advantage of orbital velocity of 17,000 miles per hour (27,350 kph) and a hypersonic reentry through Earth's atmosphere - would be a fraction of the roughly 12 to 24 hours typically needed for traditional aircraft.

SpaceX since 2021 has been studying how to use to Starship for those deliveries under a $102 million Pentagon contract. The program will graduate to a more serious prototype effort with the U.S. Space Force next year, according to 2025 budget documents.

By Medha Singh

(Reuters) - Companies worldwide are lowering full-year sales and profit guidance as higher interest rates and weakness in China's economy hurt global consumer sentiment, taking the shine off earnings growth in the latest quarter.

A number of high-profile companies have underwhelmed investors, including McDonald's (NYSE:MCD), automakers Nissan (OTC:NSANY) and Tesla (NASDAQ:TSLA), and consumer giants Nestle and Unilever (LON:ULVR). With roughly 40% of U.S. and European companies reporting results, earnings have come in about as expected - but after the strong run by world equity markets, 'about as expected' seems like a disappointment.

    "A very mixed season so far in terms of results," said Brian Mulberry, client portfolio manager at Zacks Investment Management. "We're starting to see the pressure that the higher-for-longer interest rate environment is putting on companies and their ability to continue to drive earnings and revenue growth."

The earnings season will get a jolt this week from the globe's tech giants, including Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT) and Samsung Electronics (KS:005930), Japan's Toyota Motor (NYSE:TM), oil titans Exxon Mobil (NYSE:XOM) and Shell (LON:SHEL) and European retailers L'Oreal and Adidas (OTC:ADDYY).

Global companies have zeroed in on two issues hitting their bottom lines: higher interest rates that are pinching consumer spending, and underperformance in China's economy, the second-largest in the world.

McDonald's reported its first drop in sales worldwide in 13 quarters, citing weakness in China's economy. Companies including Unilever, Visa (NYSE:V) and Aston Martin also noted weakness in China, and analysts have warned that demand in the Asian giant is unlikely to reverse while a protracted property downturn and job insecurity weigh on consumers.

 "The Chinese... are not willing to spend because they are afraid about the future," said Stefan-Guenter Bauknecht, portfolio manager at DWS. Until growth improves in China, the country will be "the weakest of the big regions, or at least the most far behind expectation," he said.

Earnings per share have so far risen by nearly 12% in the United States from a year ago, the strongest quarter out of the last 10, according to LSEG data. Earnings are up 4% in Europe, according to Bank of America Securities, slightly ahead of market expectations and for Europe the first positive growth rate since 2022.

Consumer weakness is being flagged across industry sectors and guidance cuts have picked up, the brokerage said. U.S. companies have reduced third-quarter forecasts to 7.3% year-over-year growth as of Friday from 8.6% at the beginning of July, according to LSEG data.

"While Q2 results overall have been decent, the season has nonetheless spooked the market on signs of consumer stress," Bank of America analysts said in an research note.

Nestle and Unilever both reported first-half sales growth below expectations. Companies in the euro zone's two largest economies are growing more pessimistic, raising concerns over the bloc's sluggish recovery.

"There is value-seeking behavior among consumers. There is pressure, especially at the low-income range," Nestle CEO Mark Schneider said on a call with journalists.

Auto companies are facing difficulties in the United States, where high inventories and logistical issues hurt profits of Ford Motor (NYSE:F), Stellantis (NYSE:STLA) and Nissan. EV leader Tesla disappointed investors with its results, and many still see the company as far overvalued with EV sales slowing.

EV battery firm LG Energy Solution, which supplies Tesla and Hyundai Motor (OTC:HYMTF), forecast revenue would fall more than 20% this year due to a sharper-than-expected slowdown in global EV demand. Its bigger rival, China's CATL, reported a 13% drop in second-quarter revenue.

CASHING IN CHIPS

The earnings news has hardly been all bad. Google parent Alphabet (NASDAQ:GOOGL)'s growth in cloud computing revenue augurs well for other tech bellwethers later this week. Industrial conglomerate 3M's results sent its shares to near a two-year high, while automaker General Motors (NYSE:GM) and pharmaceutical giant Johnson & Johnson (NYSE:JNJ) posted strong earnings, and banking giant JP Morgan said its profit hit a record.

Asian chipmakers have turned more bullish about demand outlook as they benefit from the global AI boom that has helped it weather the tapering off of pandemic-led electronics demand.

“AI is so hot; right now everybody, all my customers, want to put AI functionality into their devices,” TSMC Chairman and CEO C.C. Wei said at an earnings conference, adding AI demand now is more real than two or three years ago. Shares of TSMC have gained 56% so far in 2024.

Despite upbeat forecasts, shares of major Asian chipmakers are under pressure to keep up with rising expectations. That's evident as well in the performance of AI leader Nvidia (NASDAQ:NVDA), whose value surged past $3 trillion earlier this year before pulling back in the summer.

“Investor expectations are so high they may be hard to meet, and in the short term, the stock price may not rise as much," said analyst Lee Min-hee at BNK Investment & Securities.

The broad-market MSCI International index has gained 11% so far this year, peaking earlier this month before selling off, in part due to hopes that the U.S. Federal Reserve will begin cutting interest rates after similar moves from other central banks.

    "To the extent that lower rates ahead remains the popular view, analysts are unlikely to be lowering overall earnings projections for next year," Rick Meckler, partner at Cherry Lane Investments.

(Reuters) -U.S. home insurers suffered their worst underwriting loss this century in 2023, as a toxic mix of natural disasters, inflation and population growth in at-risk areas put a vital financial market under acute pressure, according to rating agency AM Best.

Insurers providing policies to homeowners were hit with a $15.2 billion net underwriting loss last year, according to figures from rating agency AM Best, saying that the figure was the worst since at least 2000 and more than double the losses since the previous year.

The report identified increasing population in the areas most vulnerable to natural disasters as a key factor — citing census figures showing that six states prone to severe weather, including California, Texas and Washington, accounted for half of the country's population growth in the 2010s.

"A growing population means an even larger rise in real property development and thus in insured values," said Christopher Graham, senior industry analyst at AM Best.

"Construction in catastrophe-prone areas adds to flood risk. It also increases the risk of wildfires in areas prone to them due to human activity, as well as utility companies, he added."

AM Best said it believes that a return to underwriting profitability for the segment over the near term is unlikely.

The Financial Times first reported on Sunday the details of the AM Best report.

By Alun John, Harry Robertson, Tom Westbrook

LONDON/SINGAPORE (Reuters) -A perfect storm of political, policy and technical risks has upended one of the year's most popular currency trades, sending the Japanese yen soaring from 38-year lows with ripples spreading as far as Switzerland, Australia and Mexico. 

Nearly $40 billion in suspected intervention by Japanese authorities ignited the yen's rally but the move has taken on a life of its own, upending the carry trades which exploit differences in interest rates and often utilise the currency. 

The yen has surged from around 162 per dollar in mid July to roughly 153 per dollar, its biggest two week gain of the year, even if it remains this 2024's worst performing G10 currency.

"The yen is a classic example of where positioning and top-down factors are aligning," said Hugh Gimber, global market strategist at JPMorgan Asset Management. 

Analysts point to expectations that the yawning gap between U.S. and Japanese interest rates could soon narrow, as well as concerns that a Donald Trump victory in November's U.S. presidential election could unleash new currency wars.

Speculators have cut their bearish bets against the yen by the most in a month since March 2020. At $8.61 billion, the net short position is 40% below April's near-seven year high, according to data from the U.S. markets regulator.

"Because this unwinding of short yen positioning is correlated with the so-called carry trade it can affect other carry positions as well," said Athanasios Vamvakidis, global head of G10 FX strategy at Bank of America.

STEAMROLLER

Carry trades have proved hugely popular this year and last, fuelled by a combination of low volatility and big differences between central bank interest rates.

Traders borrowed in yen or Swiss francs at rock-bottom rates and invested in assets with higher returns such as Mexican government bonds or even U.S. tech stocks, with analysts saying last week's equity-market rout may have got an extra kick from some carry trades unwinding. 

Benchmark 10-year borrowing costs are around 1% in Japan and 0.5% in Switzerland versus more than 4% in Australia - popular with developed-market carry traders - or near 10% in Mexico. 

The recent pick up in volatility has added pressure to carry trades that did well in the more benign markets of the first half of 2024, said Nathan Swami, head of currency trading at Citi in Singapore

"Carry trades involving funding in yen appear to be increasingly vulnerable to VaR shocks, similar to what we saw last week," he said. 

A VaR shock is essentially a jump in the maximum loss an investment can sustain over a period of time.

The resulting shifts are felt far and wide.

The Swiss franc and China's offshore yuan, other popular carry trade funding currencies, also appreciated last week, with the yuan seeing its biggest weekly gain against the dollar since April, and the franc hitting its strongest since March..

"It's all about carry trades. You can see from the daily moves in say the Swiss franc, when the news isn't to do with the franc but the yen," said Jamie Niven, senior fixed income portfolio manager at Candriam. 

Niven said he began reducing a short position in China's yuan last week, as its sudden appreciation made him wary of carry-trade currencies. 

Meanwhile, the Australian dollar has fallen 3.6% against the U.S. dollar in two weeks, and nearly 6% on the yen, its most in a fortnight since the pandemic volatility of March 2020. 

Latin American currencies like the Mexican peso are also softer.

"It's not a pure carry environment for the moment," said Andreas Koenig, head of global FX at Amundi, Europe's largest asset manager, noting that the recent daily moves in currencies like the peso can easily wipe out any gains from carry.    

The surprise outcome of the Mexican election in June also jolted carry trades, while the U.S. vote and uncertainty about the trajectory of central bank policy are likely to drive further currency volatility, deterring investors from carry trades for now.

"When uncertainty goes up and we're coming closer to big events, like U.S. elections, I would say I would wait until these are out," said Koenig. 

"Afterwards," Koenig added, "I'm pretty sure a lot of opportunities can open up, especially let's say on the Mexican side."