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Strategies & Market Trends : The Final Frontier - Online Remote Trading -- Ignore unavailable to you. Want to Upgrade?

To: TFF who wrote (10823)	6/6/2003 5:17:51 AM
From: TFF	Read Replies (1) \| Respond to of 12617

Currency traders rake in the money By David Wells Published: June 6 2003 0:07 \| Last Updated: June 6 2003 0:07 Peter Gerhard, global head of foreign exchange at Goldman Sachs, says that when you are a currency trader there is no shortage of variables to consider and there is never a boring day. On his mind lately: trade gaps, budget deficits, the rise of emerging markets, portfolio allocation, deflation in Germany, the orderly decline of the US dollar and European interest rates. Each of those variables is another possible route to making money, and currency traders have been minting it this year, helping offset parts of Wall Street banks that are in a slump, such as investment banking. Foreign exchange trading was a thriving business for Wall Street through the 1990s but volumes started to drop off after collapse of the dollar-yen trade in 1998, then again after people bet that the euro would have continued strength from its launch price in 1999 and were proved wrong, according to Tim Stewart, chief currency strategist at Morgan Stanley in New York. The combination of those things, Mr Stewart says, along with equities being white hot, left a lot of Wall Street and hedge funds with the impression that macro trading was dead. But over the past two years that has changed. A three-year bear market has left many money managers lucky to have a single-digit return - so, suddenly, a 10 per cent currency move meant a lot, Mr Stewart says. Beau Cummins, head of global foreign exchange for Banc of America Securities, says that, for currency traders, the first quarter of 2003 was great and while the second quarter did not start off strong, in part due to war in Iraq, the rise of the euro and decline of the dollar in May more than made up for it. "Trading houses are like surfers," he says. "They are catching a good wave and liking it." Another positive this year has been the rally in emerging markets, especially eastern Europe and Latin American countries such as Brazil where the Bovespa index has risen 46 per cent this year. Investor interest in emerging markets helps currency traders because it increases the number of currencies they can trade. Japan has also been a bright spot, traders say. Investors have been wading back into the country's markets since realising that, after a decade-long bear market, there is a lot of value there. Mr Gerhard says that, as investors reallocate their portfolios on a geographic basis, a currency trader can benefit because money managers have to decide if they want to take positions on a currency hedged basis. While 2003 is shaping up to be a good year, traders say they are proceeding with caution. Philip Moffitt, co-head of global fixed income and currency for Goldman Sachs Asset Management, reckons that without any other macro development the dollar should be a happy hunting ground if a manager has the skill - although traders who were late to the game in making money off the currency's decline and the euro's rise could get into trouble, he adds. Interest rates in Europe have been higher than in the US, sparking demand for the euro, which has appreciated against the dollar, the yen and the Swiss franc. But the European Central Bank cut interest rates by a half percentage point yesterday and hinted strongly that further cuts would come, which could weaken demand for the euro. Still, the dollar tumbled against the euro yesterday on speculation that the US Fed would cut interest rates later this month. "The question is: 'How long do you want to play chicken?'" Mr Moffitt says.