How much of the exchange rate changes have been due to United Kingdom monetary policy?
6.21 We have already noted the difficulties which some parts of industry say they have been experiencing as a result of the high value of Sterling. We have also discussed the problems the experts have had in explaining what has happened to sterling, and especially of evaluating the relationship between interest rates and exchange rates. 6.22 It is important not to exaggerate the rise in the value of sterling. Over the past two decades the pound has lost some 40 per cent of its value against the DM (which could be looked at as a proxy for the euro.) It has risen more recently, but is still below where it was ten years ago. Against the US dollar sterling has fluctuated for some time in the range of US$1.5 to $1.8. It has risen from a trough in 1993, but is still below its earlier peak. More to the point, it has risen steadily since 1993, a trend certainly not initiated by the decisions of the MPC. Sterling’s effective exchange rate was on a downward trend from the beginning of the 1980s
