00:00So I have to give some water to those arguments. And I'm curious from where you're sitting. I mean, how has this changed your workflow? There was a great piece out from my Bloomberg News colleagues about how this has really left these traditional models that currency traders and the like would use basically misfiring. And bring us into what your workflow actually looks like, how you grapple with that.
00:22Yeah, so it is definitely been a humbling experience this this year. So, you know, at First Eagle, we use a number of different currency models. And so I think that has helped us a bit. The models that focus really on interest rate differentials have broken down.
00:37So these type of models would have suggested the dollar should be stronger because of a higher nominal and real interest rate differentials.
00:45On top of that, you know, the dollars behaved, as you as you highlighted, strangely in reaction to events. So, you know, as an economist, you would think when when the U.S. imposed tariffs, the dollar should have strengthened.
00:58And that's what we saw in 2018-19. But the opposite has occurred during the period of risk aversion in April. The dollar weakened. It didn't strengthen in its sort of typical role during the period of geopolitical stress in Iran.
01:12The dollar dollar barely budged. And then finally, even as U.S. assets have rebounded and sort of round tripped from where they they were post or pre-April, the dollar has continued to depreciate.
01:25So something is going on differently. I'm glad you brought up interest rate differentials and how they aren't really acting how they are supposed to.
01:34I covered currency markets from 2016 to 2019 and nothing happened. So I'm a little bit salty that this is where all the fun is right now.
01:42But interest rate differentials, I mean, that was really the driving factor in determining where currencies were going to go.
01:48And this break apart that we're seeing now, do you think that we're in a new regime or do you think that we would return to some of those fundamentals?
01:56I mean, I think it's definitely possible we're moving into a new regime. The dollar tends to trade in long cycles.
02:02It's been in a strong cycle since about 2011, but we had about 10 years prior to that when it was quite weak.
02:08We're finding that models that rely more on fundamental macroeconomic fundamentals are tending to work better.
02:14These type of models would suggest the dollar is overvalued and should depreciate over the medium term.
02:22You know, for instance, if you looked at the U.S. real effective exchange rate, so the exchange rate with the U.S.'s major trading partners in real terms,
02:31it's still about 15 percent above long term averages.
02:34So, again, suggest some overvaluation.
02:37When you look at the U.S. current account deficit position, once you strip out energy, the current account deficit is at the weakest ever in U.S. history.
02:45So, again, these are sort of indications that maybe the dollar is less competitive, is overvalued.
02:50So, again, these are sort of indications that maybe the dollar is less competitive, is overvalued.
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