Currency Strategies

At an estimated $3.2 trillion a day the foreign exchange market is the biggest of all the capital markets. The types of participants range from tourists and retail speculators, to institutional speculators like hedge funds and proprietary traders at banks, to hedgers like corporations and asset managers. Some view the currency market as a source of alpha or potential profits. Some view currency movement as a risk that needs to be managed. Some view foreign exchange as simply a transactional vehicle while others view it as a legitimate asset class.

National Security and the Dollar

The National Intelligence Director Michael McConnell provided his annual risk assessment recently to the Senate Intelligence Committee. In addition to the usual threats of terrorism, nuclear proliferation and the like, McConnell expressed concern about the US dollar. Such strategic concerns are misplaced and suggest that the Bush Administration continues to have difficulty in defining US national interests.

This is the Rainy Day Japan's Reserves are Meant For- Published in the FT

Japan's economy is weakening, but the country will find it more problematic than other Group of Seven leading industrialized nations to deploy the orthodox policy tools they are using, or contemplating using. With interest rates already extremely low a rate cut would not seem a very effective stimulus and Japan is still experiencing a hang-over from its past fiscal excesses.

What Not to Expect from the G7 Meeting

The weekend G7 meeting is unlikely to generate fresh policy initiatives or inject a new force into the foreign exchange market. Indeed with concerns that the world’s biggest economy has begun contracting and as the world's second largest economy stumbles and the third largest economy slows, the foreign exchange market itself may not receive the attention it may have in the past.

The Dollar: Takes a beating, Can it Keep on Ticking

The market has been inundated with a steady stream of dollar negative news. The Federal Reserve has slashed its funds rate target by 125 bp over the past ten days or so. Fourth quarter growth was about half of what the consensus expected. The New Year has begun poorly with the US actually shedding jobs for the first time in over four years. In fact the combination of the decline in non-farm payrolls and the first drop in the work week since last July warns of risk that the US economy is contracting.