Thursday, 31 May 2012

Pound sags again

The pound has looked a bit spongey against the dollar over the past few days, we are being told. It's held most of its gains against the euro, holidaymakers will be glad to hear. Though sterling has lost a bit of ground there as well.

But looking at the the trade-weighted index - that's sterling against a basket of currencies* - you can set the recent movements in a bit of context.

The pound peaked at 106.8 on 23rd January, 2007. (The index is set at 100 from the start of 2005.)

Then the credit crunch and financial crisis saw it drop to 73.7 at the end of 2008.

That's what a devaluation looks like: a 31% drop.

Since then sterling has been clawing back a little ground, up and down, bit bit.

It sagged to 77.6 in April last year, then rose to 84.5 on 14th May this year.

Now it has slipped a bit, down to 83.6.

Where are we? 13% above the low in 2008.

But still 22% down from the pre-crisis peak. Still devalued.
*Bank of England definition: "The sterling effective exchange rate index is a measure of the overall change in the trade-weighted exchange value of sterling, calculated by weighting together bilateral exchange rates. It is designed to measure changes in the price competitiveness of traded goods and services and so the weights reflect trade flows in manufactured goods and services."

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