Comparing Two Great Depreciations

The dollar continued its fall against the euro today, hitting its eighth record low in a row. It’s now down to around 1.22 $/€. This set me to wondering. Sure the dollar has fallen pretty consistently over the past couple of months. But is this depreciation of the dollar large by historical standards?

The most dramatic depreciation of the dollar over the past quarter century was the roughly 50% fall in the dollar between early 1985 and late 1987. That dollar depreciation was intentional – all of the major economies of the world agreed to jointly act to push down the dollar, in the famous “Plaza Accord” of 1985. (Okay, maybe ‘famous’ is the wrong word to use… unless you’re talking to a bunch of international economists.)

So I find it interesting to see that the recent history of the dollar against the euro looks remarkably similar to the path of the dollar against the DM back in the 1980s. Here’s the graph:

The answer to my original question is yes. The current depreciation is indeed large by historical standards – and is starting to approach the magnitude of the most dramatic dollar depreciation in the past quarter century.