Crisis indicator flashes red

One obscure market early warning sign is flashing red. Matthew Partridge explains what it is, and asks should we be worried?

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Will the thaw prove dangerous?
(Image credit: GaryAlvis)

Since the financial crisis in 2008 there has been a bit of a boom in the market for "early warning signs" obscure indicators that might flag up that we're heading for trouble again. One such indicator is flashing warning signs right now. The alert in question relates to a feature of the currency markets known as covered-interest parity. In the currency markets you can buy a currency (buy the dollar versus the pound, say) at today's rate (the spot market) or on a future date (the forward market). Covered-interest parity states that the gap between the two prices should equal the interest-rate differential between the nations involved.

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Dr Matthew Partridge
Shares editor, MoneyWeek

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri