Hedge fund

At the time of this enquiry, the dollar was strengthening even as the US current account deficit was widening. This had led to some speculation that the old, formal, relationship between a country's trade position and its currency was no longer applicable to the dollar. New theories, like those that appealed to the 'dark matter' of US investments abroad, argued that the dollar could continue to strengthen even if the current account deficit rose further.

This is a typical example of the kind of project work that Fathom excels at. We build a small analytical model and then weighed its conclusions up against the data and our own judgement. We argued that there was no hard evidence to support these new theories, and that sooner or later, the relationship between the dollar and the US trade position would re-assert itself.

A much truncated version of the original presentation is attached and the underlying model can be seen here.

• Download: dollar.pdf (282KB)