Should currency now be seen as an asset class?

This week started with the euro breaching the $1.17 barrier for the first time since its launch more than four years ago. And anyone who moved their savings from US dollars to the euro this year is sitting on a tidy profit.

For the truth is clear: savers can lose money even if they are just holding cash in a currency that devalues, and in that sense at least, currency is just another asset class like shares, bonds and real estate.

However, one important difference is that if you live in a US dollar zone (and all the GCC currencies are dollar-linked), then the fact that all goods and services are priced in dollars locally means that you will not feel the impact of devaluation until you travel abroad. Or at least not until you want to buy a BMW made in Germany!

But where currencies are freely tradable, clearly they are just another asset class. Buyers of euros at the beginning of 2003 could now switch out, and bank a profit in US dollars.

The problem is that trading in foreign exchange is no easier to get right than shares or real estate. Indeed, the enormous range of variables involved in currency markets is testing even for forex professionals such as HSBC, the Currency Watch columnist on this website.

'The banks have been trading in foreign exchange for years, and delivering double-digit results,' says Dominik A. Suter, the founder of Onyx Capital Asset Management which is launching a forex fund this month. 'It is just that this sort of service has not been widely available, and clients probably preferred equities in any case'.

Mr. Suter has a pedigree forex career behind him with two major Swiss banks, and has spent the past 18 months setting up his own boutique fund management company, Onyx, in Cyprus (contact: info@onyxasset.com). His fund is aimed at regional institutions and sophisticated and experienced private investors who want to profit from movements in the major currencies.

'We study charts of 30 minute movements and have a lifetime of experience in forex, that is all we do,' he explains. 'What we have established is a fund that seeks to deliver a stable 1-2% per month and still be here in 10 years' time'.

Not surprisingly Mr. Suter has some very clear views on where he thinks the forex markets will move this year. He sees the euro's strength as a relatively short-term phenomenon and predicts a return to US dollar parity by the end of 2003.

'Next year sees the accession of 10 countries with weaker economies to the European Union, and that is just bound to have a depressing effect on the euro. What we are seeing now is the US Treasury keeping Japanese bond holders happy with a weak dollar which means they get more dollars back when they re-finance. This is nothing new, and we have seen it all before'.

It looks as though Mr. Suter has chanced to launch his new fund at a very interesting time for currency movements, and there is obviously a good case for engaging expert assistance in managing currency as an asset class in itself.

Particularly in a volatile market it is easy to get caught out. But anyone who bought the euro in January 2002 has a 29% profit today, and how many asset classes have delivered that sort of return in recent times?