Dieser Artikel widmet sich dem Wunsch vieler Notenbanken, dass Forex-Wechselkurse die "fundamentalen Rahmendaten" besser berücksichtigen sollten. Tatsache ist - so die These des Artikels -dass Zinsdifferenzen bei Forex-Kursen eine weit wichtigere Rolle spielen als Fundamentalfaktoren wie das US-Defizit.
"Currencies should reflect fundamentals" and "I love Mom and apple pie": Who can disagree with such platitudes?
And yet officials appear to think that are saying something substantive when they say foreign-exchange prices should reflect fundamentals. Of course they should. Can they do anything
but reflect fundamentals?
The real issue is not fundamentals vs. something else but which set of fundamental factors is the key consideration for investment and speculative decisions.
The Capital Issue
When G7 or International Monetary Fund officials say that currencies should reflect fundamentals, it seems like they are referencing external imbalances. This underlies the call for Asian currencies to appreciate and the general belief that the U.S. dollar has to decline.
Yet we know that the money that is turned over in the currency market far overwhelms the flow of goods and services. Private estimates of daily volume in the foreign-exchange market are in excess of
$2.5 trillion a day.
That means one week's turnover in the foreign-exchange market is sufficient to cover a year of the world's trade. It seems unreasonable then to attribute a privileged place to the trade of goods and services in explaining or forecasting changes in foreign-exchange prices. Rather than place undue emphasis on the
trade account, investors and policymakers are
better served focusing on the capital account. The fundamental considerations there seem to explain a greater part of market developments and foreign-exchange prices than trade balances.
The Yen and the Yield Curve
French and German officials have most recently expressed
concern about the weakness of the yen. But the yen's weakness reflects a fundamental judgment of market participants.
That judgment isn't based on the fact that Japan's trade surplus is growing or that Japan is experiencing the longest economic recovery in its modern history. Rather, the key fundamental that market has been focused on is the low interest rate, the prospect that compared with Europe and the U.S., Japan's rates will remain relatively low. The steepness of the Japanese yield curve is likely to hold.
It is difficult to prove this thesis true, but consider how Copernicus proved that the earth went around the sun. The short answer is, he didn't. But by assuming that the earth went around the sun, Copernicus was able to explain other "facts," or more correctly, observations.
Similarly,
if we assume that the foreign-exchange market is being driven more by capital account considerations than by trade factors, a number of other "facts" make sense.
This thesis helps explain why the Swiss franc is weak as well. After Japan, Switzerland offers the lowest interest rates in the world. The Swiss National Bank
key rate stands at 2.0% (the midpoint of the 1.5%-2.5% three-month London interbank offered rate, or LIBOR, band). Speculators at the International Money Market have not been net long Swiss francs since early June.
Flush With Liquidity
In addition to the price of money, the quantity of money is an issue for the capital markets. Global liquidity, measured by money supply, is ample.
A contrarian indicator of the importance of money supply is the fact that the Federal Reserve stopped reporting the broad-based measure called M3 almost a year ago. However, other measures suggest that U.S. money supply is growing at a robust pace. Consider that when the Fed began raising interest rates in this cycle back in mid-2004, M2 was growing at an annualized rate of 4.6%.
As of the end of December 2006, M2 was growing at a 5.3% clip. The growth rate accelerated in the fourth quarter of 2006, and the December reading was the highest since February 2005.
A year after the European Central Bank began raising interest rates, money supply is expanding at its fastest rate in nearly two decades. The
ECB reported Friday that December 2006 money supply rose 9.7% above year-earlier levels.
This is more than twice the 4.5% reference rate. In November 2005, the month before the ECB began entered its tightening cycle, M3 was growing at a 7.5% pace.
In the U.K., M4 grew at a 12.5% year-over-year pace in December. This represents a modest slowing from the 14.4% peak recorded in September, but it is still well above nominal growth rates, and the 12-month average is at its highest level in more than a decade.
In
Japan, normalization of the central bank's reserve provisions to the commercial banks slowed the growth of the monetary aggregates. But the measure of the broad definition of liquidity (M3 plus CDs) rose at a 2.7% pace in December. This compares with a 2.3% pace in June, the month before the Bank of Japan hiked rates by 25 basis points, up from zero. This matches the fastest pace since May 2005. Moreover, we have the fact that since early 2006, bank lending has turned positive for the first time in years.
Although
China is arguably still a developing economy, the fact that
in purchasing-power parity terms it is the world's second-largest economy and in nominal terms it is the world's fourth-largest economy (and
could surpass Germany next year to move into third place) means we would be remiss if we did not include China in this brief survey of liquidity.
Money supply, measured by M2 in China, was rising at almost a 17% year-over-year rate in December. By China's own assessment, this is
excessive.
Hammering Home the Point
This survey illustrates another important feature of the fundamental landscape for investors and policymakers.
Despite the rate hikes, money-supply growth has accelerated, leaving the world flush with liquidity. Just as a high tide hides the rocks below the surface, so too does
the flood of liquidity encourage a move into higher-yielding and riskier assets. This produces what bureaucrats and economists regard as the
mispricing of risk.
And of course this speaks to the carry trades and the weakness of those currencies, such as the Japanese yen and Swiss franc, in countries that also have substantial current account surpluses. It also speaks to some of the strength of emerging-market currencies.
If the official claims are right, that the currency markets should reflect fundamentals and that they currently don't, what is the remedy? As the psychologist Abraham Maslow once observed, if all one has is a hammer, all problems look like nails.
It is abundantly clear that the G7 members aren't prepared to intervene materially in the foreign-exchange market to put their taxpayers' money behind their assertion (not argument) that currencies should reflect trade fundamentals. All that the "hammer" officials have are words -- that is,
verbal intervention -- and there are obvious
limits on their efficacy.
Consider that in recent days -- and ahead of the G7 meeting on Feb. 9-10 --
German officials have verbally intervened to strengthen the yen. At the end of last week, Jan. 19, the dollar finished near JPY121.24. It is modestly higher now, at JPY121.50. The
euro was trading near JPY157.10 and now is just below JPY157, essentially unchanged. Sterling is about 0.5% lower against the yen than it was a week ago, but this appears to reflect a correction in sterling after dovish comments by Bank of England Governor Mervyn King and fading speculation of another rate hike here in the first quarter of 2007.
If the thesis sketched here is accurate -- that the currency market reflects fundamentals, but the fundamentals of capital market considerations rather than trade positions -- then the underlying trends may persist as long as the world's liquidity remains abundant. Investors and speculators respond to
incentives. If the incentive structure changes, investment patterns and speculative propensities will also change. It seems likely that the financial engineering and the further development of the capital markets allow for the extension of the credit cycle, but officials still can strongly influence, even if not dictate, the incentive structure.
If policymakers want the market to price risk in greater accordance with their models and want the yen and Swiss franc to strengthen, they have to do more to reduce liquidity and alter the interest rate outlook for Japan and Switzerland.
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Marc Chandler has been covering the global capital markets in one fashion or another for nearly 20 years, working at economic consulting firms and global investment banks. Currently, he is the chief foreign exchange strategist at Brown Brothers Harriman. Recently, Chandler was the chief currency strategist for HSBC Bank USA. He is a prolific writer and speaker and appears regularly on CNBC. In addition to being quoted in the financial press, Chandler is often a guest writer for the Financial Times. He also teaches at New York University, where he is an associate professor in the School of Continuing and Professional Studies. 
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