Thanks Gersh, appreciate it greatly. The counterpoint to a currency taking time to build a top was the USD top against the $/DEM and the other major currencies back in Feb of 1985.
$/DEM was engaged in a multiyear runaway sprint and had more than doubled against the Deutschemark and the other majors when the Major US Equity Market kicked off it's Multi Year BullMarket on August 15th 1982.
$/DEM made it all the way to 3.41 - 3.43 on I believe it was Feb 22nd of 1985 and then it reversed as did the USD index big time. The Famed Plaza accord took place over the Sept 22nd 1985 weekend, and the "inside baseball" analysis of why it was successful was that the market had already turned it's major trend from US Dollar up to US Dollar down 7 months prior to the accord.
Everything around the world is priced in the various currencies and they play such a fundametal role in determining asset flows in all of our major capital markets that it's really worth keeping an eye on these trends.
I believe that it was a purposeful construction to have some currencies quoted against the pound sterling as the reference currency and then to have others quoted with the USD as the reference currency. It makes the market harder to understand. This opaqueness was especially obvious in the creation of the IMM currency futures market as it quoted the Deutschemark, Yen, Swiss Franc etc, in the inverse relationship to it's quotation in the interbank market.
I would advocate that London's single biggest advantage in it's continuing role of challenging New York as the center of Global Capital Markets; is the Global domination of currency trading, especially currency cross rate (pairs) trading; and the concomitant advantage it provides in creating more sophisticated structured products. Sarbanes Oxley also has lead to a dimunition of New York as the Global Apex of Finance.
Now we are in an environment where we are witnessing huge changes and must patiently wait to see the extent of this rebalancing of the Global Credit Markets.
John
ps... this wikipedia entry on the plaza accord is entirely wrong in my opinion, in it's assessment that the 10 billion in currency intervention lead to the USD bear market after it's formation in Sept of 1985. The market had already turned and larger Macro fundamentals were at work.
----------------------------------
en.wikipedia.org
The Plaza Accord or Plaza Agreement was an agreement signed on September 22, 1985 at the Plaza Hotel in New York City by 5 nations - France, West Germany, Japan, the United States and the United Kingdom. The five agreed to, amongst others, depreciate the US dollar in relation to the Japanese yen and German Deutsche Mark by intervening in currency markets.
The exchange rate value of the dollar versus the yen declined 51% over the two years after this agreement took place. Most of this devaluation was due to the $10 billion spent by the participating central banks. Currency speculation caused the dollar to continue its fall after the end of coordinated interventions. Unlike some similar financial crises of the 1990s (such as the Mexican and the Argentinian financial crises of 1994 and 2001 respectively), this devaluation was planned, done in an orderly manner with pre-announcement, and did not lead to financial panic in the world markets.
The reason for the dollar's devaluation was twofold: to reduce the US current account deficit, which had reached 3.5% of the GDP, and to help the US economy to emerge from a serious recession that began in the early 1980s. The U.S. Federal Reserve System under Paul Volcker had overvalued the dollar enough to make industry in the US (particularly the automobile industry) less competitive in the global market. Devaluing the dollar made US exports cheaper to its trading partners, which in turn meant that other countries bought more American-made goods and services. The Plaza Accord was successful in reducing the US trade deficit with Western European nations but largely failed to fulfill its primary objective of alleviating the trade deficit with Japan because this deficit was due to structural rather than monetary conditions. US manufactured goods became more competitive in the exports market but were still largely unable to succeed in the Japanese domestic market due to Japan's structural restrictions on imports. The recessionary effects of the strengthened yen in Japan's export-dependent economy created an incentive for the expansionary monetary policies that led to the Japanese asset price bubble of the late 1980s. The Louvre Accord was signed in 1987 to halt the continuing decline of the US Dollar.
It is unlikely that such an arrangement would have succeeded in the long run, as the global economy is too large, heterogeneous, and fluid for even the most sophisticated central banks to effectively intervene.[citation needed]
The signing of the Plaza Accord was significant in that it reflected Japan's emergence as a real player in managing the international monetary system. |
