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Why Don't Currencies Trade Like They Used To?
To explain how odd currencies have been in recent years, you need to go right back to the beginning of free market trading in currencies. The Thatcher/Reagan revolution ushered in an era of free market pricing in currency markets. When we think about free markets determining the value of an exchange rate, then the exchange rate needs to be set at a level that attracts capital. To simplify currencies, I think in the long run. Over the long run, if you have two similar countries, but one that is more productive than the other, then you would expect its exchange rate to appreciate. This means we can find currency pairs, ... (full story)
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