Understanding this indicator
Sterling against the dollar offers a view of the UK in relation to the wider dollar environment. An exchange rate is a relative price: it describes one currency in terms of another. GBP/USD shows the foreign currency against the US dollar. The cycle view asks how its strength has changed over the past year and whether a broader rhythm is visible beneath shorter-term moves.
The quote is expressed as US dollars per unit of the foreign currency. We compare each monthly observation with the same month a year earlier, using the logarithm of their ratio to measure the annual change. A positive year-on-year reading means that the foreign currency buys more dollars than it did a year earlier; a negative reading means it buys fewer.
Direction adds information to the sign. A negative annual reading that is recovering can indicate that the currency’s year-on-year weakness is easing. A falling positive reading can indicate that its annual gain is shrinking. Neither by itself tells us whether the currency rose in the latest month, which is a separate, shorter comparison.
Interest-rate differences, trade conditions and international investment can all affect this relationship. Compare the curve with the common currency cycle and the Dollar Index to see whether the change is part of a broad dollar movement or more specific to this currency. Other market cycles provide context, but the exchange rate itself does not measure the volume or destination of capital flows.
The green line isolates the 3–4-year Kitchin cycle from the historical data; it is a fitted cycle, not a forecast of the next turn. The lower chart shows the 7–10-year Juglar cycle and the 15–25-year Kuznets cycle. Comparing these time scales can reveal why a shorter upswing sometimes sits within a much longer period of weakness. The two main-chart axes use different scales, so compare their timing and direction rather than the height of one line against the other. Historical curves may change as the data are updated.