Bank of America to use AI for currency research

America's top banks and financial institutions are beginning to put AI to the test. Will it survive?
3 July 2018 | 496 Shares

Bank of America becomes the first to publish insights from its machine-learning models into its currency research. Source: Shutterstock

We’ve all been hearing about artificial intelligence (AI) and machine learning (ML) and how it can help comb through vast amounts of data to create useful, actionable insights.

However, until now, AI and ML failed to make a noticeable impact in one of the most data-rich industries in the world: Banking and financial services.

Bank of America has taken a step to change that (probably forever) and is setting a precedent for its competitors who are watching carefully.

According to Bloomberg, the financial institution’s currency strategists will be using machine learning programs and models to create insight and support research findings – all of which will be published for clients to use.

“It’s hard to learn from the historical data because of the nature of the FX market, so we try to really push the frontier” with alternative data and machine learning, Alice Leng, the Currency Strategist who authored Bank of America’s AI-based research told the New York-based news bureau.

However, it’s important to note that Bank of America isn’t the first to use AI and ML for its currency operations. JPMorgan’s forex research team has explored ML-based applications for currency research, although insights produced haven’t been used to advise clients.

The use of AI and ML, in fact, is becoming a growing trend in the financial services industry, and it is likely that several of Bank of America’s competitors will follow in its footsteps.

Morgan Stanley, for example, just added a computer-science professor from the University of Pennsylvania to its team to explore the use of AI across the company.

And although there are naysayers who believe this is just another hype and an attempt by financial institutions to ride on the hype created by AI and other buzzwords, there’s proof that AI can provide accurate currency forecasts.

The Nikkei, far away in Tokyo, announced the results of an experiment it ran with its AI model earlier this year.

Trained at the Nikkei Innovation Lab and fed a steady diet of financial articles and dozens of economic and financial indicators, the AI served up the most accurate forecast for the year-end exchange rate, beating around 400 readers and 10 analysts.

Currency research aside, AI has made several contributions to financial services in the recent past.

Several of these, such as robo-advisory solutions and actuarial science models, have already helped some businesses gain the first-movers advantage and leapfrog over the competition.

In fact, robo-advisory has become a micro-industry by itself and crossed US$200 billion in assets under management (AUM). The returns these AI-powered advisors managed to earn for their clients touched 27.7 percent (2-year return), according to Dow Jones & Company.

Based on past performance, there’s hope that AI will make a dent in currency research as well. If not, the models will only need to be improved.