What really matters from the perspective of a particular economy, however, is the effective exchange rate, which accounts for which countries a particular nation trades and competes with. Real variables also matter, with inflation differentials critical to competitiveness.
The experience of the Yen is probably most interesting from this perspective. From 2000-2008 Japan saw some improvement competitiveness through a lower nominal exchange rate, particularly against the Euro and the Chinese Yuan. But much more of the gains came through the much more painful process of relative deflation.
Following the financial crisis, the Yen rallied, partly as carry trades unwound as risk was taken off and relative yields narrowed. The Yen also bizarrely for a while seen as a safe haven at that time.
But that perception has now been radically changed by the ramping of fiscal and monetary policy, with the very aggressive expansion of the BoJ's balance sheet a game changer for Japanese bonds, inflation expectations and the Yen. The depreciation in the last few months in real effective terms has been the equivalent of years of painful deflation.
One currency which has fallen off the radar in terms of interest is the Chinese Yuan. This has continued its slow, managed rise against the USD, but in real effective terms has actually jumped 4.6% in the year to date.
The weak Yuan was the centrepiece of concerns about global imbalances prior to the financial meltdown and the fact that it continues to rise at a fairly rapid pace is good news for those concerned with adjustment. But it is bad news for already-slower Chinese growth.
Much has been made of the ascendancy of the USD lately, but from a US economy perspective the greenback hasn't really done too much at all.
This is good news for policymakers, as a very strong effective exchange rate would act as an unwanted brake on growth at a time when there is a lot talk of taking away the punchbowl with the tapering of Quantitative Easing.
The experience of the Yen through the 2000's is perhaps going to be a useful template for the Euro in the coming years. Perhaps the Euro can depreciate further in nominal terms and can effectively depreciate further by changing its trade exposure further towards Asia. But because of weak policy choices, relative deflation seems a likely route for much more competitiveness.
Complicating the Euro picture is the economic divergence across the currency block. For example, Germany has seen a meaningfully improvement in its effective exchange rate given its exposure to ex-Euro trading partners.
But Spain hasn't seen nearly as much of an improvement that it needs given how disastrous current growth outcomes are, because Germany accounts for a large proportion of its trade.
To me this highlights that there is still a huge amount of adjustment still required in the Euro area, with markets perhaps too comfortable with a promise to do "whatever it takes" when monetary policy isn't doing much at all and financial conditions are too tight.
