A curious collision of geography, history and reading matter occurred on August 1. I was on the way to Bretton Woods in the mountains of New Hampshire reading the Financial Times. A report said that, after a poor 2005, many currency hedge funds were faring equally badly in 2006. It concluded: “A second year of losses could erode the post-Millennium consensus that currency is an asset class in its own right.”
The collapse of the Bretton Woods agreement in 1973 marked the end of fixed exchange rates. This, in turn, created the foreign exchange market as we know it. And what a mighty edifice it is. The Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity, published by the Bank for International Settlements in 2004, recorded that the FX market trades $1.9 trillion a day.
That survey also noted the rising power of institutional investors...
