EXCHANGE RATES REVISITED.

EXCHANGE RATES REVISITED. I have previously posted on the difficulty of predicting foreign exchange rate movements and questioning whether the large American trade deficit predicts a massive decline in the dollar. That post relied on Morgan Stanley’s views on exchange rates. This Economics Focus article in The Economist has some additional interesting analysis from a Morgan Stanley currency economist (Stephen Jen). Jen argues that American mutual funds may be a more important factor than foreign governments in increasing the percentage of their assets in non-American equities (from 15% to 22$ in the last four years). Mr. Jen argues that this may reflect a decline in provincialism with American institutions leading the way toward avoiding excessive reliance on home country assets.