April 18, 2007
British Pound — Long-term Perspective
Here’s a quarterly chart of the British Pound since 1971. You can see why the “2″ level is considered a big deal. When we moved to London in February 2003 GBP was around 1.57 and when we left in March 2005 it was around 1.93. Dumb luck to be earning pounds then, but the long-term investments that we intentionally made in Pound-denominated stuff during those years look pretty good when we translate them back today.
Cat: | Time: 8:22 pm (utc+8)
April 19th, 2007 at 3:22 am
It looks like the last tinme it was flirting with 2.0 in 1993 it crashed down massively in a very short period of time. Any idea why that happened? Obviously one wonders if history might repeat itself.
April 19th, 2007 at 4:48 am
isn’t it marvelous how round numbers have a magnetic property? look at the bounce at 1.0
April 19th, 2007 at 6:58 am
Eyal: The plunge back in Sep. 1992 happened when Britain pulled out of the ERM (and George Soros famously made a billion dollars).
April 19th, 2007 at 7:52 am
Excellent chart. The divergent interest rates cycles between the US, the UK and Europe are such that sterling is now also very strong on a trade-weighted basis. I know the chart looks scary in terms of how much higher this thing can go, but I think the perfect storm will eventually dissipate and sterling will come back down. I suspect purchasing power parity will prevent GBP from remaining high for too long: it must already be cheaper for Amazon buyers in the UK to ship many goods from the US than to buy from Amazon UK (?).
ps - forgive the blasphemous fundamental comment!
April 19th, 2007 at 9:48 am
Caravaggio: How many people have lost their minds trying to explain currency movements with “fundamentals”? ;-)
April 20th, 2007 at 7:09 am
Hi CM, I’m sure a fair few have gone mental trying to figure out why the prices are doing, using the fundamentals to tell the story, but if you take a big picture approach, incorporating economic theory with what’s happening across the financial markets, and if you also have an appreciation for the history of price action in relation to the fundamentals (the humility aspect), then I think it doesn’t have to be a hopeless cause.
ps - perhaps fundamentals make for the better hindsight explainer of fx moves and technicals for future moves!
April 26th, 2007 at 5:45 am
[…] I was inspired to generate three data graphs from my currency models for my readers after reading Maoxian’s post on the British Pound. These graphs show price relationships between the Euro and the US Dollar Index, the Euro and the British Pound, and finally the Euro and the Swiss Franc. […]