Currency markets are mostly boring. Rates move by fractions of a percent, traders drink their coffee, and nothing makes the evening news.
Every few years, though, something wild happens. Here are some of the most dramatic, funny and painful moments of recent years, and what a currency strength index showed (or would have shown) to anyone watching.
The Swiss franc earthquake (January 2015)
For years the Swiss National Bank (SNB) held EUR/CHF at a floor of 1.20. Traders treated it as a guarantee, and some built leveraged bets on it.
On 15 January 2015 the SNB dropped the floor without warning. The franc jumped 30% against the euro within minutes. Some brokers went bankrupt, some traders lost their savings, and Swiss exporters suddenly had a far more expensive currency.
What the index showed: right up to that day, CHF moved in lockstep with the euro, in the middle of the basket. In the month before the shock both lost 0.7% against it. Then, within two trading days, the franc gained about 17% against the basket and became its strongest currency by a wide margin. The jump showed against every currency, not only the euro. What the index could not do was warn you in advance: a floor defended by a central bank hides the pressure until the day it gives way.
The pound's flash crash (October 2016)
At 7:07 a.m. Tokyo time on 7 October 2016 the British pound fell 6% in two minutes, from $1.26 to $1.18. Within hours it had recovered most of the drop.
Nobody is entirely sure why it happened. Some blamed algorithmic trading gone haywire, others a fat-finger order. The Bank of England looked into it and concluded it was a combination of thin liquidity and automated selling.
What the index showed: GBP had already been the weakest currency in the basket since the Brexit vote four months earlier, down about 14% against it by the eve of the crash. The flash crash was dramatic, but it was a symptom. The weakness had been on the chart since June.
The Turkish lira: a slow-motion disaster
The lira didn't collapse in a day; it melted over years. In 2015 one US dollar bought about 2.7 lira. By 2023 it bought 27, a 90% loss of value.
The causes were a mix of unconventional monetary policy (cutting interest rates while inflation was high), political interference with the central bank and fading investor confidence.
What an index would have shown: FX Compass doesn't track the lira, but in any basket that included it, the lira would have sat at the bottom year after year. Individual pairs bounced around while the broad picture was a steady collapse. Whatever you compared it with, the lira was losing.
The lira shows what happens when monetary policy fights the market for long enough: in the end the currency loses.
The yen's long goodbye (2021 to 2024)
The yen's fall was gradual and still startling. In January 2021 a dollar bought about 103 yen. By mid-2024 it bought 160, a 35% depreciation.
Travelling abroad became expensive for the Japanese, while visitors to Japan enjoyed cheap sushi and affordable hotels.
What the index showed: JPY was falling against everything, not just the dollar. Over those three and a half years it lost about 26% against the basket and finished last of 16, down against the euro, the pound, the Australian dollar and even emerging-market currencies such as the zloty and the forint. It was a weak-yen story more than a strong-dollar story.
The euro's brush with parity (2022)
In 2022 the euro fell below parity with the US dollar for the first time in 20 years, and in September EUR/USD touched 0.9536. Europeans travelling to the US faced a painful rate.
Two things drove it: the energy crisis that followed Russia's invasion of Ukraine, and the Fed's aggressive rate hikes.
What the index showed: the picture was less dramatic than EUR/USD suggested. The euro really was weak against the dollar, but it was gaining against the yen, the Swedish krona and some Central European currencies. From January to late September it lost only about 1% against the basket, while the dollar gained 18%. The index showed a mildly weak euro, not a collapsing one.
What these episodes have in common
Each time, a single exchange rate gave an incomplete picture, and sometimes a misleading one.
- The franc tracked the euro right up to the day the floor broke, then jumped 17% against the basket in two days.
- The pound's flash crash was noise on top of a weakness that had been visible for months.
- The lira's collapse was broad and steady long before it made headlines.
- The yen fell against everything, not just the dollar.
- The euro's "collapse" in 2022 was mild weakness. The dollar was the outlier.
Want to see how your currencies are doing today? Check the live strength index on FX Compass. It updates every trading day from central bank reference rates.
Explore these periods on the dashboard
These links open the dashboard with the right currencies and dates:
- CHF, EUR, GBP and USD from 2013 to 2016, around the franc shock
- GBP, EUR and USD from June 2016 to June 2019, the three years after the Brexit vote
- JPY against USD and EUR from 2021 to mid-2024, the yen's long slide
- The majors over the last year, for the current picture
Currency markets can be wild, funny and frightening. A strength index won't predict the next shock, but it gives you the broad view that central bankers and institutional traders have always relied on, and now anyone can use it. Next time someone tells you the euro is crashing, check the index first. You may be surprised.