| Foreign exchange market braces for rise of algorithms
CHICAGO (Reuters) - Global investors using complex, computer-driven models will increasingly pump up the foreign exchange market's volume, creating both opportunities and headaches for market makers. In algorithmic trading, hyper-fast computer programs based on mathematical models essentially make split-second financial decisions to find optimal prices. With hedge funds and other high-frequency investors gravitating to so-called algos, the programs are already helping to keep trading volume robust even as volatility in the currency markets generally declines, according to panelists at an industry conference sponsored by FX Week magazine this week. "The barriers to entering this market have decreased, yet how does one on the buy side or the sell side manage liquidity when it is spread across so many different venues," said Darren Jer, regional FX sales manager with ICAP.
Foreign currency investments may be off mark
Everyone seems to hate something these days. Hate clowns? Meet your fellow haters at IHateClowns.com. Think cilantro is a noxious weed? Go to IHateCilantro.com. Hate the Red Sox? Head to Yankee Stadium. In the investment world, everyone seems to be hating the dollar: The consensus is that the dollar will decline in value against other currencies. If you're a dollar hater, you have several new ways to bet against the buck. But pouring money into foreign currencies might not be the best way to display your pique. In the short term, money tends to flow to the country with the highest interest rates. Those flows, in turn, drive currency values up and down. For example, Japanese investors who buy U.S. Treasury bonds have to convert yen into dollars to make the purchase.
Japan not to shift foreign currency reserves out of dollar
TOKYO: Japan has no plans to divert its foreign currency reserves – the world's second largest – out of dollars and will not sell foreign assets to help redeem its government bonds, Finance Minister Koji Omi said yesterday.
It now also expects a higher funding cost for its external reserves due to recent rate hikes by the Bank of Japan after years of enjoying virtually zero costs while earning much higher returns from its mainly dollar-denominated reserve assets.
The currency breakdown of Japan's external reserves is a state secret, but historical data on the country's currency intervention, which has mostly taken the form of dollar buying, suggests most of Tokyo's hefty reserves are in US dollars.
“We do not comment on the composition of currencies in foreign reserves as it may have an unexpected impact on markets, but we have no plan to substantially change the composition," Omi told a parliamentary committee.
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