This is one of my favorite charts to update and post every now and again, showing the long-term view of how many different currencies have appreciated or depreciated over time. I even used to have a version of this chart on the back of my business card as a conversation starter.
In the short term, currencies rates fluctuate, and I generally consider FX trading one of the more difficult financial markets in which to try and make money. The the long term however, I find currencies fall into one of three trend categories:
- Long-term appreciators – these are currencies with relatively low inflation, well balanced monetary and fiscal policy and often a favorable balance of trade that tends to make them “safe haven” currencies. The currencies on this chart in this category include the Japanese Yen, the Swiss Franc, and the Singapore dollar, as well as the German Mark prior to joining the Euro
- Long-term decliners – these are generally emerging market currencies, in the above case the Indian Rupee and the Chinese Yuan Renminbi (the latter only considered to be in the “appreciator” category in the past decade). These currencies are typically marked by high inflation and periodic devaluation to make exports competitive. This category could also include currencies like the Philippine Peso, Mexican Peso, Spanish peseta, Italian lira, and Greek drachma before it joined the Euro.
- Major range-bound or mean reverting currencies – most of the G10 currencies ex-Japan would fall into this category, as a long-term store of value which may go up or down in the short term, but tend to mean revert to “real money” values in the long term. The Euro itself would probably fall into this category since 1999, as well as the Canadian Dollar and Australian Dollar.
The British Pound I think could be considered either a mean reverter or a long-term decliner, and I generally hold the latter view with the expectation that the Pound should settle around parity with the dollar over the next decade.
Until next time,