The convergence of developed and emerging country currency markets will provide forex traders with a chance to break their three-year run of negative returns, according to the head of global macro strategy for State Street Global Markets, Michael Metcalfe.

While the overall correlation between the performance of developed and emerging currencies was growing, Metcalfe said there had been no convergence to fair value, and no narrowing of individual current account imbalances. “;This actually presents an opportunity for currency managers,”; Metcalfe told yesterday’s ninth annual State Street Global Markets(SSGM) Investment Research Conference. However, Metcalfe said institutional currency managers needed to become more dynamic, particularly as non-commercial speculators now accounted for over half the volumes on currency futures markets, up from 30 per cent in 1996. According to SSGM cumulative flow data, which includes the unrealised flows implicit in futures contracts, any particular factor guiding investment in the market now dominates for an average of just two and a half weeks. SSGM research had found that investment based on currencies delivering the best yields (that is, carry trades) worked in aggressive markets, while those based on underlying current account deficits worked best in defensive regimes.