Movements in currency markets — whether of the peso versus the dollar, dollar versus the euro, yen, or other currencies — have tremendous impact in our lives. From debt servicing to import costs and, closer to home, the value of 8 million Filipino workers’ earnings as well as other dollar earners like call centers. As a result, millions of eyes follow each little blip and hiccup in the forex markets every day.
Much as financial journalists would like to meet the daily challenge of making each article understandable to grade six students, sometimes that task becomes extremely difficult due to limitations of time, space and, well, ability. As a result, reading currency news can be so confusing.
So here are small tips for beginners who want to understand forex articles, and more to the point, turn this understanding to better money management.
Words like weaker, lower, softer,and depreciated indicates you will be getting more for every dollar, while stronger, higher, firmer, appreciated should make dollar earners quite disappointed.
When it comes to verbs, you have to give journalists a little bit of leeway. I mean, imagine how the article will read if you can’t use colorful verbs to describe what happens to currencies during trading hours. A falling peso means the peso’s value drops against the dollar. When that happens, you need more pesos to buy one dollar, but then your dollar can buy more pesos. Common words that replace fell are dropped, tumbled, went on a downward trend, things that make both OFWs and exporters happy.
Words like rose, lifted, edged up, recovered lost gains, improved, on an upward trend, eased, however, will do quite the opposite.
Some other phrases I found on recent news articles on the exchange rate:
The peso is expected to extend its gains against the dollar.
Interpretation: Get ready to send more dollars in the coming weeks because the amount you normally remit will not be enough to pay rent and buy groceries.
The euro is expected to outperform the dollar.
Interpretation: Buy more euros.
Market is mixed.
Interpretation: Currency brokers can’t make up their minds.
Honestly, players in financial markets surprise me often with how creative they can be with language. Seriously. “Unwinding of excessive short dollar positions?” A friend’s reaction: Ano raw? Right interpretation: Currency dealers are buying dollars again. Short on the dollar means they have lessened their dollar hoard and invested in other currencies. (Rolling eyeballs here…) Journalists can be so full of jargon, sometimes.
If you want to know more about how to manage foreign exchange risks, here are some of my previous posts:
Is the dollar a doomed currency?
GUEST POST: Cool tool for managing dollar earnings
4 warnings signs you’ve missed the forex lessons from the Asian crisis
Silver lining for the stronger peso
Finally, can you remember when you last saw a P2-bill?
October 6th, 2007 at 7:14 pm
nosebleed!
thanks for this guide.
October 6th, 2007 at 2:36 pm
Someone passed this on to me and I was a little bit hesitant to put in a comment. The simple reason is before you want to make people aware about terms used in currency trading you should warn people on the quality of the forex market here in the Phils.
There is really no full convertibility of forex trading of the Philippine peso. It is a managed float policy of government. BSP is a public utility. In other words it is a rigged market.
The rate is decided on the floor of the BAP trading platform where the (BSP) government is a player. Not on any commodity mercantile exchange where it should be listed. It is not a transparent market and thus subject to manipulation. I do not trust governments most especially Bankers who run Central banks.
In effect there are price controls and supply of money is managed. That makes it a rigged market.
I believe it is incumbent on a financial jjournalist to be forthright in explaining terms that matter. Terms like pegged currencies on a narrow band or wide band.
Managed floats versus pure floats. You see under any form of bands - narrow or wide or managed floats the exchange rates are more fixed by the government than they are not. There is no real floating rate exchange regime here in the Philippines.
Being a net importer of capital Filipinos should know the meaning of these terms.
For the short term bet against the U.S. dollar from a purely speculative play. Meaning if you have money you do not need. The more money goes into the play the less the BSP can continue defending the dollar. Buy real estate through the PSE listings of realty companies. It is more liquid than buying real estate.
There is a gigantic debt bubble in the world and people can make some money by riding on this debt bubble by moving to peso financial assets.
October 5th, 2007 at 5:29 pm
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