Category Archive: FX Theory

The author George Dorgan
George Dorgan
George Dorgan (penname) predicted the end of the EUR/CHF peg at the CFA Society and at many occasions on and on this blog. Several Swiss and international financial advisors support the site. These firms aim to deliver independent advice from the often misleading mainstream of banks and asset managers. George is FinTech entrepreneur, financial author and alternative economist. He speak seven languages fluently.

9. The Holy Grail of Long-Term Currency Movements: Crowther’s Balances and Imbalances of Payments

The former chief editor of "The Economist" Geoffrey Crowther published a great work on the development of balance of payments and current accounts over the long-term. It divides development into six phases, which are analogous to Shakespeare's seven...

The Euro is Poised for a Rise, Expect $1.50 in 2 to 4 Years

We present twelve reasons that could sustain a further euro appreciation to $1.40 or even 1.50 in the upcoming two to four years. The main one is that Germans are net global creditors and Americans net debtors. This is reflected in fiscal and monetary...

5.2. FX Theory: Penn Effect and Balassa Samuelson Effect

George Dorgan extends the previous discussion on trade surplus countries. Now he explains the Penn and the Balassa-Samuelson Effect. He applies these principles to Germany, to Greece and to Switzerland.

5.1. FX Theory: The Trade Surplus and the Real Exchange Rate Mean Reversion

George Dorgan explains why currencies of countries with trade surpluses must appreciate over the long-term. Thanks to these surpluses, inflation and costs of companies rise more slowly than in other countries. In Forex a mean reversion does not exist,...

5. The Balance of Payments Model

The Balance of Payments is the sum of current and capital account. The Balance of Payments model states that a currency appreciate when the Balance of Payments is positive. We give an explanation in around 400 words, that clarifies the relationships.

2.6. CPI-based Real Effective Exchange Rate Since 1965: Yen Still Most Overvalued Currency

If we calculate Real Effective Exchange rates on the base year 1965, the Japanese yen remains the most overvalued currency. This analysis is based on the real effective exchange rate (REER) provided by the Bank of International Settlement (BIS) and a...

6.6 The Ultimate Carry Trade: U.S. Banks Buying Treasuries

12. FX Rates, Contrarian Investments and the Misleading Concept Called GDP

We extended our existing post to contrarian investing. It was published on Seeking Alpha and awarded the Editor's Pick. Gross Domestic Product(ion) is (or has become) a measurement of activity and consumption, but not of capital accumulation and...

10.1.1. Net International Investment Position United Kingdom

We discuss the net international investment position of the United Kingdom

10.1.2. Net International Investment Position Switzerland and Italy

We compare aspects of the Net International Investment Positions for Italy and Switzerland

10.1 Net International Investment Position

A comparison of the net international investment position (NIIP) of several countries. We explain why asset valuation effects this position at the example of the United States.

5.2. FX Rates, the Balance of Payments Model and Central Bank Interventions

We will apply the balance of payments model for determining FX rate movements and FX interventions by central banks.

13. Germany and the Currencies in Northern Europe

German spending is one factor that drives currencies in Northern Europe.

2.1. OECD Purchasing Power Parity Index

The OECD purchasing power parity compares consumption prices in different countries.

2.2. Purchasing Power Parity: Big Mac and Starbucks Tall Latte

The following table compares the Big Mac and the Starbucks Tall Latte index among different countries. It explains the issues with these measurements.

2.3. Differences in global CPI baskets

Typically poorer countries have a basket with a higher weight for food and other consumption goods, but richer states give them a smaller weight. Here the full details over different countries

7. FX Theory: The Asset Market Model

The Asset Market Model implies that a currency will be in higher demand and should appreciate in value, if the flow of funds into financial market of the country such as equity and bonds markets increase.

2.7. The Most Complete Real Effective FX Rate Comparison

In August 2013 the Bruegel blog offered one of the best comparison of long-term real effective exchange rates (REER). The data is CPI based and therefore not as good as the producer price index (PPI) that reflects tradable goods better. However the...

1.1. Currencies: Asian vs. American bloc

9.1. Yen Weakness: Risk-Off Environment, Abenomics or Trade Deficit?

The yen overshot during and after the financial crisis. The USD/JPY fell from 120 in 2008 to lowest levels of 74, by 62%, but rose to 102 again. What are the reasons?
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