A slide in the dollar and signs that volatility is returning to foreign exchange markets as interest-rate hikes bite is causing investors to reassess wildly popular carry trades and to be pickier about which currencies they back. The carry trade - an investment strategy that takes advantage of differences in borrowing costs between countries - has provided bumper returns this year as most central banks have hiked rates, causing yields to rise, but at different paces. "The world's favourite carry trade," according to Bank of America, involves investors borrowing Japanese yen where the central bank has pinned rates low, and converting them to Mexican peso to buy much higher-yielding bonds.

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