Early this year, I heard a famous economist say there are two types of economists: Those who understand they don’t know the future, and those who don’t understand that they don’t know the future.
For those of us who consider ourselves market practitioners, humility in forecasting comes quickly.
But of course, in our business we get questions about the future every day from clients who have personal or business-related reasons for doing financial transactions in other currencies.
As opposed to investors who take on risk as a necessary part of a higher return on capital, these individuals are handed unwanted market risk as a necessary part of their personal or commercial business.
The key benefit we offer is helping them understand that risk and providing tools to help manage it.
It is in that context that this week, the City National Bank foreign exchange desk published medium-term forecasts for certain major currencies, along with our rationale for those forecasts.
The nature of international business, or even tourism, makes foreign exchange forecasting even harder than other asset classes. That’s because those buying and selling stocks and bonds do so to make more money. But those who deal in foreign exchange and commodities often have to make those transactions whether they are profitable or not.
This leads to those quirky days that don’t follow the investment “rule book.”
We know, for example, that the U.S. dollar will increase in value vis-a-vis the British pound if U.S. interest rates rise or British interest rates fall. But if on one day a U.S. company announces that it will buy a big British company, and needs pounds sterling to do so, the opposite effect may prevail.
My View: We know that we do not know the future. But we also know there are overarching factors that tend to drive currency values one way or the other and we watch those very closely to help our clients make the best decisions possible.
Our medium-term forecasts will be posted on News&Insights. You can also to receive them.
|The information in this report was compiled by the staff at City National Bank from data and sources believed to be reliable but City National Bank makes no representation as to the accuracy or completeness of the information. The opinions expressed, together with any estimate or projection given, constitute the judgment of the author as of the date of the report. City National Bank has no obligation to update, modify or amend this report or to otherwise notify a reader in the event any information stated, opinion expressed, matter discussed, estimate or projection changes or is determined to be inaccurate. This report is intended to be a source of general information. It is not to be construed as an offer, or solicitation of an offer, to buy or sell any financial instrument. It should not be relied upon as specific investment advice directed to the reader’s specific investment objectives. Any financial instrument discussed in this report may not be suitable for the reader. Each reader must make his or her own investment decision, using an independent advisor if prudent, based on his or her own investment objective and financial situation. Prices and availability of financial instruments are subject to change without notice. Financial instruments denominated in a foreign currency are subject to exchange rate risk in addition to the risk of the investment. City National Bank (and its clients or associated persons) may, at times, engage in transactions in a manner inconsistent with this report and, with respect to particular securities and financial instruments discussed, may buy from or sell to clients or others on a principal basis. Past performance is not necessarily an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.|