Carry trades can still be profitable, but the era of "effortless wins" may be over! Citi warns of the risk of narrowing interest rate spreads.

Citi's US FX trading team expects that although carry trade strategies may struggle to replicate the impressive returns of the previous period, they will still continue to offer profit opportunities for investors. Fuad Muvdi, head of FX trading for the Americas at Citi, said such tradeswhich involve borrowing in low-yielding currencies and investing the funds in higher-return marketswill still benefit from higher interest rate levels in emerging markets. Meanwhile, after Fed officials decided last week not to raise rates, he expects the dollar to weaken slightly.