Carry On, Calm Is Coming: G10 and EM Strategy and US Economics

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Global Idea

August 14, 2026 11:00 PM GMT

G10 and EM Strategy and US Economics

Morgan Stanley & Co. LLC

Andrew M Watrous

Strategist

Carry On, Calm Is Coming

Morgan Stanley & Co. International plc+

Arnav Gupta

Where are you going now, FX vol? Where will you be

tomorrow? We think FX calm will persist into September as Fed

and geopolitical risks fade, supporting carry. We favor short

EUR/AUD, exit short EUR/CHF, and stay constructive on TRY and

Egyptian T-bills.

Key Takeaways

Strategist

Morgan Stanley & Co. LLC

Heather Berger

Economist

Morgan Stanley & Co. International plc+

David S. Adams, CFA

Strategist

Fed repricing, fading geopolitical risks, post-intervention JPY declines and

seasonal quiet all point to subdued FX volatility.

Low volatility should support carry; an AR-GARCH model's 90% prediction

Morgan Stanley MUFG Securities Co., Ltd.+

Koichi Sugisaki

Strategist

interval for two-month-ahead realized FX vol is 5.8 to 8.2, below the historical

median.

Morgan Stanley & Co. LLC

In G10, we recommend short EUR/AUD: AUD offers the highest G10 forward-

Strategist

implied yield, while euro area policy pricing and growth look vulnerable.

Molly Nickolin

In EM, we remain constructive on TRY carry and Egyptian six-month T-bills,

backed by stronger policy credibility and external buffers.

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