Standard Chartered Supplants TD Securities as Top Forecaster of Currencies

Standard Chartered Plc was the top foreign-exchange forecaster for the six quarters ended Sept. 30, up from second place in the previous period and supplanting TD Securities Inc., according to data compiled by Bloomberg.

The U.K. bank prevailed over 43 other firms to be the most accurate predictor of currencies across eight currency pairs, with an average margin error of 3.79 percent. Westpac Banking Corp. rose to second from ninth, while Wells Fargo & Co. stayed third and Canadian Imperial Bank of Commerce held at the No. 4 slot. BNP Paribas SA moved to fifth from 10th.

“The last two years have been an exceptionally challenging time to forecast Group of 10 exchange rates,” Callum Henderson, global head of foreign-exchange research at Standard Chartered in Singapore, said in a telephone interview. “You’ve had almost unprecedented volatility in the G-10.”

Currency volatility averaged 13 percent in the 18-month period covered by the Bloomberg News survey, according to the JPMorgan G7 Volatility Index. That compares with an average of 8.8 percent from 2003 through 2007. The Group of Seven currencies include the U.S. dollar, euro, Canadian dollar, Japanese yen and British pound.

In the 18 months covered by the ranking, the euro swung from a 15-month high against the dollar in November 2009 to a four-year low in June and back to a five-month high in September. Europe’s currency climbed to $1.3948 on Oct. 6, its strongest since Feb. 3, on signs the Federal Reserve will buy more bonds, a strategy known as quantitative easing.

Euro Forecast

Standard Chartered forecasts that the euro will end the year at $1.40, compared with $1.3901 at 11:31 a.m. in Tokyo. The median year-end forecast for the currency pair is $1.32, according to data compiled by Bloomberg.

“We have the prospect of quantitative easing in the U.S., and obviously that’s a key driver,” Henderson said. “The one place where it seems extremely unlikely is the euro zone.”

Fed Chairman Ben S. Bernanke said on Oct. 4 the central bank aided the U.S. economy through its $1.75 trillion purchases of mortgage debt and Treasuries that ended in March 2010 and that further buying would be likely increase the benefit.

European Central Bank President Jean-Claude Trichet said Sept. 27 the Governing Council considers the current interest rates “appropriate” for the inflation outlook.

“The rate of inflation could increase slightly in the short term but should remain moderate over the policy-relevant horizon,” Trichet said. The ECB’s benchmark interest rate of 1 percent compares with the Fed’s target range of zero to 0.25 percent.

Rating Criteria

Companies participating in the ranking were compared based on seven criteria: six forecasts at the end of each quarter for the close of the next, starting in March 2009, plus one annual estimate, which was made at the end of September 2009 for currency rates as of Sept. 30, 2010.

Only firms with at least four forecasts for a particular currency pair were ranked for it, and only those that qualified in at least five of eight pairs were included in the ranking of best overall predictors.

Standard Chartered concentrates on the monetary policy outlooks for central banks and the differences between interest rates among countries. The U.K. bank derived 96 percent of its profit before tax from outside Americas, U.K. and Europe in the six months through June, according to its semi-annual report.

“We focused on what I would call ‘governing dynamics,’ to quote John Nash,” Henderson said. “It’s been a story of relative policy expectations.”

John Nash was awarded the 1994 Nobel Memorial Prize in Economic Sciences with Reinhard Selten and John Harsanyi.

Euro Bear

The ECB’s 22-member Governing Council convenes today in Frankfurt. Policy makers will set the benchmark lending rate at 1 percent for an 18th month, according to a Bloomberg News survey of economists. Rates are forecast to remain at 1 percent in the 16-nation region and at 0.25 percent in the U.S. through mid-2011, separate Bloomberg News surveys show.

While Standard Chartered is bullish on the euro, BNP Paribas is bearish. The firm expects the region’s fiscal crisis will weigh on sentiment, driving the euro down to $1.23.

“We still believe the euro will come back under pressure as fundamentals in the euro continue to deteriorate,” said Ian Stannard, a senior currency strategist at the firm in London.

The euro area’s gross domestic product will grow 1.7 percent this year and 1.5 percent in 2001, compared with 2.6 percent in the U.S. for 2010 and 2.3 percent next year, the International Monetary Fund said yesterday.

TD Securities was the most accurate forecaster in the prior survey for the period ended June 30. At the time, the bank was betting on further euro weakness, with the currency approaching parity with the dollar as the ECB bought government bonds to support the region’s economy.

The Toronto-based firm now expects the yen will end the year at 85 to the dollar, according to chief currency strategist Shaun Osborne, from a previous call of 91. That compares with 82.92 against the greenback today and the median year-end forecast of 86, according to Bloomberg data.

To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net; Anchalee Worrachate in London at aworrachate@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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Standard Chartered Top Forecaster of Currencies

Nelson Ching/Bloomberg

Standard Chartered concentrates on the monetary policy outlooks for central banks and the differences between interest rates among countries.

Standard Chartered concentrates on the monetary policy outlooks for central banks and the differences between interest rates among countries. Photographer: Nelson Ching/Bloomberg