Yeah, interest rate expectations are going to be one of two primary considerations for the carry trade over the next few weeks - that and fears over the health of the financial markets.

Though it is just analyst remarks (and analysts can't influence the market for long under most situations), there are a number of warnings being issued over the health of the markets. Goldman says US firms need to raise another $65 billion to compensate for ongoing write downs; John Paulson (manager of fund Paulson & Co. who profited from the subprime meltdown) says global writedowns are only a third of the way through the $1.3 trillion total; and RBS is very pessimistic with a market crash forecast by September.

And, though interest expectations have improved in favor of the carry recently (with the outlook for Fed cuts throttling back), they are still heading out of favor of high yield differentials. The dollar is a funding currency, but the FOMC is looking at hiking - the market thinks multiple times. The franc is still holding a hawkish tinge; but the yen is steady were it is. On the opposite side of the trade, the RBNZ has cleared the way for rate cuts, the RBA has made it clear they won't do anything for the rest of the year (probably meaning they will be going to cuts next) and even the chance at a BoE hike has been pulled back with wait-and-see commentary by the MPC.

We should get some interesting action from the carry over the next month or so. Direction, however, will probably take longer to discern.