Do you have a take by how the dollar exchange ratios are driven by speculation and investments vs. business activity or other things?
Which factors would we need to focus on to get a take about its short or medium term direction?
Edit: Following your post here we now have an overview of volumes by different counterparties.
I wonder if it is possible to determine which kind of transactions are driving exchange ratios the most.
I think it could be a smaller subset of volumes as
- Spot trading numbers might be inflated by a lot of back and forth trading
- Short term borrowing of dollar (fx swaps with two legs) should be relatively neutral (?) to exchange rates because of the two legs (?).
On the other side forward fx contracts with one leg should certainly have an impact via arbitrage. (GPT)
I think business activity might not show up in BiS numbers as businesses use banks or specialized financial intermediaries for their fx hedges instead of having other businesses as counterparty (see gpt prompts from above) but might be important for exchange rates nevertheless.
Other factors are obvs. positioning of investors, states, carry trades etc. etc.
Overall I would like to try not to join this research too much because I am busy with other topics but I just wanted to share those thoughts. I would be looking for more finalized conclusions and insights what is driving exchange rates and consequently analysis of those factors established as most important in the current situation and an assessment how EUR.USD will likely develop in the future. I am aware that producing this could take a bit of time so having first indications would be great before potentially going more in depth.
@Magaly