"Seek Shelter in Safer Currencies" Warning Sounded

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A leading analyst says there are warning signs that suggest the tide might soon turn against this extreme appetite for risk.

Currencies like the dollar, yen and franc will be sought when investors seek shelter from a potential major market reaction.

This is the warning of Jeremy Boulton, a Reuters market analyst who sees similarities between today and the global financial crisis.

He says "it may be wise to seek shelter in safer currencies - particularly the yen and the dollar - which have been heavily sold."

Boulton draws a comparison to 2007, when substantial cash flowed into carry trades while stocks ballooned, before disaster struck in 2008.

"In 2025 and early 2026, equities have surged to record levels far above their 2007 peaks, allowing carry trades - designed to profit during quiet periods - to flourish despite considerable currency volatility," says Boulton.

Image: CNN.

A carry trade is where an investor borrows in low interest rate currencies and invests in markets where interest rates are higher. A classic example is the surging AUD, owing to Australia now offering the highest real yield in the G10.

"Rather than seeking safety during a global trade war, money has flowed away from the global reserve currency towards less liquid carry-trade legs such as South Africa's rand, Hungary's forint, and Mexico's peso. The yen – widely used to fund carry trades – has slumped, reaching a record low on a trade-weighted basis in January," explains Boulton.

He adds that we're seeing a market that exhibits classic signs of a speculative frenzy.

"At the heart of market moves during the trade conflict is an extreme appetite for risk: traders willing to gamble have often been rewarded - until they aren't, and the rule of thumb is that most gamblers lose. If the tide turns, the dollar and the yen – both sold and considered safe - could prove even safer, with gains amplified by the short positions built against them," says Boulton.