Photographer: Chris Ratcliffe/Bloomberg

To Find Top Currency Forecaster, Skip London and Head to Warsaw

Updated on
  • TMS Brokers led in Bloomberg rankings followed by Saxo, NBF
  • Poland-based firm among top forecasters of Aussie, sterling

Konrad Bialas, part of the most accurate currency forecasting team in the past year, bolsters the mathematical and political variables in his economic models with an extra consideration: Murphy’s Law.

From the 80-person headquarters of TMS Brokers in Warsaw’s financial district, Bialas’s four-person research group was the best overall forecaster of major currencies in the 12 months through September, according to Bloomberg rankings of 61 firms. TMS was also among the top four predictors among seven exchange rates, including the Australian dollar and the British pound. 

Publishing research -- in Polish -- for the company’s mostly retail clients, TMS hit the mark last quarter by being pessimistic, incorporating a possible meltdown in China’s stock market into its foreign-exchange forecasts. The company also questioned whether the bullish consensus on the U.S. dollar was too good to be true.

“We try to think outside of the box -- sometimes there could be some black-swan situations or tail risk that can mess up every econometric model,” Bialas said by phone Oct. 2. “We are not looking only at the quantitative data.”

Retail Clients

The firm’s predictions were borne out as a rout in Chinese equities and revaluation of the yuan in August fueled risk aversion across global financial markets, boosting the euro and yen against the greenback in the third quarter, while pressuring currencies of commodity-exporting nations.

The company that beat forecasters at big London and New York banks operates out of a glass-walled, modern office that contrasts with its neighbor, the Palace of Culture and Science, a Soviet-era structure that’s the tallest building in Poland. TMS was founded in 1997 as a foreign-exchange broker and adviser dealing in futures, options and over-the-counter contracts, said Marcin Kotowski, the company’s chief operating officer and a member of its management board. Many of its clients are businessmen and women or other professionals who trade on their own accounts, he said.

“The analysis team has to deliver some quite high-quality research,” which is often cited by Polish news outlets, Kotowski said.

The best forecasters in Bloomberg’s rankings were identified by averaging individual scores on margin of error, timing and directional accuracy across 13 currency pairs during the past four quarters. Saxo Bank A/S and National Bank of Canada were the second and third most accurate forecasters overall, according to Bloomberg’s rankings.

Favorite Trade

Bialas’ favorite trade today is to sell the euro against the pound on speculation that the European Central Bank will extend its quantitative easing program in contrast with the Bank of England, which will probably raise interest rates next year.

“The fear that can be pushing investors to sell stocks and make extra volatility can be supportive for euro, yen, Swiss franc -- and not necessarily supportive for the dollar,” said Bialas, who was formerly an analyst at Alior Bank SA, a local lender. TMS forecasts the euro will weaken to $1.09 against the dollar at the end of this year and $1.05 by the end of March. It was little changed at $1.1226 as of 7:54 a.m. in New York.

He’s bearish on the currencies of commodity exporters such as Australia, Canada and New Zealand even after this year’s plunge. The worsening outlook for demand will probably cause central bankers in these nations to express dovish views on monetary policy, he said.

When it comes to Murphy’s law -- the idea that if anything can go wrong, it will -- Bialas said there’s still plenty to be wary of.

“There’s a debate about what the Federal Reserve, ECB and Bank of Japan will do and when,” Bialas said. There’s also geopolitical tension between Russia and the U.S. over Syria, which may affect risk sentiment in financial markets, he said.

Asked what other outside-the-box ideas are guiding his outlook, Bialas demurred.

“I’m trying not to tell all my secrets,” he said, laughing.