The pound's trade-weighted value rose by more than 20% between August 1996 and August 1997.
Sterling has lost 15% of its trade-weighted value over the past year, and 5% over the past month.
The euro's trade-weighted value, however, has risen by much less, taking it back to its value at launch in January 1999.
Given the fall in the pound of about 25% in its trade-weighted value from mid-2007, Britain's trading performance has been rather disappointing.
One reason is that, although the dollar has fallen sharply against the euro, its broad trade-weighted value has fallen by only 8% over the past 12 months.
The dollar's trade-weighted value declined by 0.9% over the week.
Over the past year, in contrast, its trade-weighted value has hardly budged, because the currencies of three of Australia's most important trading partners Japan, New Zealand and South Korea have also tumbled against the American dollar.
Even though Britain relies more than other European countries on Asian trade and investment, sterling should have the bigger effect, given that the trade-weighted value of the pound is about 25% higher than in mid-1996.
But the hefty depreciation of around a quarter in sterling's trade-weighted value since mid-2007 will still bolster the economy by making British producers of tradable goods and services more competitive both in foreign markets and at home.
We think the Fed underestimates this linkage, in part by using the trade-weighted value of the dollar rather than the absolute value (the trade-weighted dollar mixes together changes in the dollar with changes in the value of foreign currencies).
The value of sterling against a trade-weighted basket of currencies is now around 25% lower than in mid-2007, before the financial crisis began.
In America, Japan's competitive cars and the value of the yen (at a 20-year low on a trade-weighted basis) threaten to become political issues again.
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