GBP, EUR, AUD

GBP is still scraping along the bottom of the chart, and hasn't really changed much in the last two years:
The EURocrats are playing the same game as the British government but there appears to be some way to go yet (another few per cent down?):
The only major currency which looks possible a bit toppy is AUD:
Usual rules apply: the charts from 1990 to date, except AUD which starts a couple of years later and you can click to enlarge.

Currency Wars: GBP, AUD

Here are the charts for British Pound and Australian Dollar against a basket of currencies since 1990:

Sterling, Australian Dollar

Here's the up-to-date chart showing sterling against a basket of other currencies since 1990. As you can see, it recovered a bit and is now heading back to it's all time low of nine months ago, but it's not an absolute disaster or anything (the UK economy is doing badly, but only marginally worse than the others). Click to enlarge:

The only currency to have done staggeringly well this year is the Australian dollar, as it happens. It crashed late last year when the JPY carry-trade bubble burst, but Australia was one of the few countries to have hiked interest rates slightly in response to the global property price bubble (rather than cutting them to keep it going) and so even though it has reduced its base rate (to keep the economy going - so far they have avoided a recession, allegedly), it's still much higher than in most countries. Click to enlarge:

My currency basket

For the record, when I post charts showing currency movements, these are all against the same 'basket'. Commenters have asked me how I calculate this, so I shall explain it properly and add this post to my 'Quick links' widget in the top right hand corner.

Step 1. I can't be bothered to ascribe relative weights to each country, so I use two currencies from the North American bloc (USD and CAD); three from the European bloc (GBP, EUR and CHF) and three from Asia-Pacific (JPY, AUD and SGD), so the overall weighting is 'roughly right'. I don't include Chinese Yuan or Hong Kong Dollar as I don't trust them as far as I can throw them.

Step 2. Using GBP as a base currency, I download daily rates from the excellent www.oanda.com (starting from 1 January 1990) 'A'.

Step 3. I then adjust the daily value (in GBP terms) of each currency by dividing it by its long-run average value (in GBP terms) 'B'. For example, EUR is currently GBP 0.9021, but its long-run average is GBP 0.7090, so that then goes into the calculations as 1.2724 'C'.

Step 4. For each individual currency, I add up the 'C' values of the other seven currencies (GBP is always 1.00, of course) and divide it by 7 to arrive at 'D', the value of a unit of 'world currency' from the point of view of each individual currency.

Step 5. Each individual currency then gets divided by the value of one unit of 'world currency' to give the final value 'E' that I use in my charts. For good measure, I also add 183-day and 365-day moving averages.

Here's the example of how I calculated the final value 'E' for 10 April 2009 (the actual spreadsheet I use is in rows down, not columns across, of course), click to enlarge:

Just sayin', is all.

JPY to AUD exchange rates since 1994

I have read many a time that Japanese savers, faced with derisory interest rates, preferred to invest in high-yielding currencies, in particular the Australian dollar. Some went one step further and borrowed JPY at negligible interest rates and invested the proceeds in AUD (aka 'the carry trade').

As the chart* for the last fifteen years shows, for the last eight years this was a fantastic strategy; not only were they earning much more in interest, but AUD was increasing in value against JPY by about 7.5% a year (+1.075^8=1.8). This strategy is now unravelling rapidly; the fall in AUD relative to JPY over the past few weeks was sufficient to wipe out the entire exchange rate gains of all those who moved into AUD since 2001:

There seems to be pretty solid resistance at the level of AUD 1.60 per JPY 100, apart from a couple of spikes in 2000 and 2001. Maybe that's the level to start swapping from JPY back into AUD again?

Just sayin', is all.

* For avoidance of doubt, the chart shows the cost of JPY100 expressed in terms of AUD - a downward slope is good for people invested in AUD and vice versa.