A very strange thing occurred in the first half of this year: The humans beat the robots in the dark art of correctly interpreting the gnomic utterances of Ben Bernanke, the chairman of the U.S. Federal Reserve. Currency funds that rely on computer trading managed a return of a mere 0.7 percent, whereas human-managed funds earned 2.3 percent. The robots were more baffled by Bernanke's various pronouncements giving clues about the schedule for slowing the Fed's bond purchase program, the interpretations and misinterpretations of which caused big swings in the euro-dollar exchange rate.
Carbon- and silicon-based market participants have to react quickly or funds in the carry trade across currencies get into difficulties. Normally the quant funds outperform the humans by relying on indicators and formulae, but this year reactions to Bernanke's comments caught them wrong-footed and caused losses when the carry trade reversed.
No doubt the robots would be baffled even more if they had access to the dark political games being played in Washington to find a successor to Bernanke when his term ends at the end of January.