The 100-Pip Tradertracked the average monthly spot price for each of the currency
pairs that would be affected individually. What we generally found
was that spot prices lag interest rate movements quite a bit. For
example, in August 1990, differential between the pound and the
yen interest rate peaked at about 10.5 percent—meaning that the
Bank the England has an astoundingly higher interest rate than
the Bank of Japan. I believe the Bank of England had a base rate
at 15 percent and the Bank of Japan had a base rate of something
like 4 percent, and what we found was even after that differential
started to come down to 10 percent, the spot price continued to
rise afterwards, meaning it took a while for those carry trades to
actually unwind. There wasn’t as quick of a process of unwind-
ing. It didn’t turn on dime. Actually, spot prices took a while to
catch up.
So, returning to your question, in my longer-term trading anal-
ysis, I might take into account the fact that although interest differ-
entials are converging or diverging, it takes the spot price a while
to catch up with some of that interest rate movement. But it does,
in fact, historically tend to catch up with the interest rate differ-
ential. So if there’s any primary long-term fundamental tool that I
use in forecasting currency movements, it’s definitely interest rate
differentials from nation to nation.
Q: How many hours a day do you spend trading?
A: Three to six hours per day, which includes the planning of
trades and analysis, and so forth. The rest of the time I write, answer
e-mail, and spend time with my family or my other community
responsibilities.
Q: What is your typical day like?
A: If you look at my day from a 24-hour perspective, it goes
something like this: