<p>The <a href="https://en.wikipedia.org/wiki/Currency_pair" rel="nofollow noreferrer">convention in finance</a> is that any <strong>currency pair</strong> "currency1/currency2" is to be interpreted as the number of units of <em>currency2</em> needed to <strong>buy</strong> one unit of <em>currency1</em>, or alternatively, as the number of <em>currency2</em> you get from <strong>selling</strong> one unit of <em>currency1</em>.</p>

<p>For instance, as of <a href="https://www.poundsterlinglive.com/best-exchange-rates/british-pound-to-us-dollar-exchange-rate-on-2017-03-13" rel="nofollow noreferrer">13th of Match of 2017</a>, the currency pair rate of exchange between the £ and the US $ (GBP/USD) was roughly 1.22. This means that you need 1.22 US dollars to buy £1.</p>

<p>Under this convention, <strong>a fall/increase in the GBP/USD means a depreciation/appreciation of the British Pound with respect to the US Dollar.</strong></p>

<p>So, using your example, if the GBP/USD goes up from 3 to 5, then the British Pound appreciates with respect to the US Dollar.</p>

<p>By contrast, the convention in economics is to define the <strong>exchange rate</strong> as £x/\$1, meaning that you need x British Pounds to buy 1 US Dollar, or that you can sell 1 US Dollar for x British Pounds.</p>

<p>Under this convention, <strong>an increase/fall in £x/\$1 means a depreciation/appreciation of the British Pound with respect to the US Dollar.</strong></p>

<p>In other words, <strong>the interpretation is exactly the opposite.</strong></p>

CC BY-SA 3.0
2017-03-15T15:08:24.293Z
As the graphs I refer to in general are being used in economics analysis, does that mean that the second part of your answer supports my suspicion that perhaps the diagram I've provided as an example was incorrectly interpreted by the author? (the diagram is from economicsonline.co.uk)
tsp216
CC BY-SA 3.0
2017-03-15T16:41:25.073Z
An increase in £x/\$1 means a depreciation of the pound vis-a-vis the dollar, as you need more pounds to buy one dollar. This could be understood as a "push up" or an"increase" in the exchange rate. But the use of "exchange rate" without context is ambiguous, as the exchange rate can always be defined in two ways.
luchonacho
CC BY-SA 3.0
2017-03-16T14:04:26.853Z
I've only come across the term "appreciation" of a currency in my economics reading, meaning a currency is worth more than it used to with respect to the same unchanged unit of another currency. I don't often see the terms "Increase" or "push-up" used in economic context. With this in mind, could you/anyone answer the first comment that I made under luchonacho's answer
tsp216
CC BY-SA 3.0
2017-03-17T09:50:49.607Z
Why is the interpretation incorrect? It is showing an increase in the exchange rate. The author has not spoken about an appreciation or depreciation (at least not in the graph you show). The term depreciation is very common too. [Here is an example](http://www.economist.com/news/britain/21707114-firms-may-struggle-absorb-extra-cost-pricier-imports-consumers-will-foot-bill-how).
luchonacho
CC BY-SA 3.0
2017-03-15T11:12:31.643Z
2017-03-15T11:12:31.643Z
luchonacho
<p>The market for a currency typically has the y axis labelled as (currency1/currency2) where currency1 is the currency in which the demand and supply is for. If this is the case, wouldn't it mean that a vertical movement upwards along the vertical axis mean that the currency is in fact depreciating rather than appreciating? For example, if a point on vertical axis is originally at £3/1USD and a movement upwards along the vertical axis to a point where £5/1USD, does this not mean that the pound has depreciated? I'm curious all of a sudden because I've always been told and analysed the currency market as one where any upwards/downwards movement on the vertical axis represents appreciation/depreciation, but the example I've just given seems to conflict with this. I've also found various sources where a movement upwards along the vertical axis shows an appreciation, such as in the pic below, which is how I've always viewed the market until just now.</p>

<p><a href="https://i.sstatic.net/p2C8q.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/p2C8q.png" alt="enter image description here"></a></p>

<foreign-exchange>
Misleading vertical axis in foreign exchange graphs analyses?
tsp216
# Misleading vertical axis in foreign exchange graphs analyses?

(Asked by: username_0 on 2017-03-14)

The market for a currency typically has the y axis labelled as (currency1/currency2) where currency1 is the currency in which the demand and supply is for. If this is the case, wouldn't it mean that a vertical movement upwards along the vertical axis mean that the currency is in fact depreciating rather than appreciating? For example, if a point on vertical axis is originally at £3/1USD and a movement upwards along the vertical axis to a point where £5/1USD, does this not mean that the pound has depreciated? I'm curious all of a sudden because I've always been told and analysed the currency market as one where any upwards/downwards movement on the vertical axis represents appreciation/depreciation, but the example I've just given seems to conflict with this. I've also found various sources where a movement upwards along the vertical axis shows an appreciation, such as in the pic below, which is how I've always viewed the market until just now.

[![enter image description here](https://i.sstatic.net/p2C8q.png)](https://i.sstatic.net/p2C8q.png)

**Tags:** foreign-exchange


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## 1 answers

### Answer by username_1 on 2017-03-15. Score: 2 | Accepted answer

The [convention in finance](https://en.wikipedia.org/wiki/Currency_pair) is that any **currency pair** "currency1/currency2" is to be interpreted as the number of units of *currency2* needed to **buy** one unit of *currency1*, or alternatively, as the number of *currency2* you get from **selling** one unit of *currency1*.

For instance, as of [13th of Match of 2017](https://www.poundsterlinglive.com/best-exchange-rates/british-pound-to-us-dollar-exchange-rate-on-2017-03-13), the currency pair rate of exchange between the £ and the US $ (GBP/USD) was roughly 1.22. This means that you need 1.22 US dollars to buy £1.

Under this convention, **a fall/increase in the GBP/USD means a depreciation/appreciation of the British Pound with respect to the US Dollar.**

So, using your example, if the GBP/USD goes up from 3 to 5, then the British Pound appreciates with respect to the US Dollar.

By contrast, the convention in economics is to define the **exchange rate** as £x/\$1, meaning that you need x British Pounds to buy 1 US Dollar, or that you can sell 1 US Dollar for x British Pounds.

Under this convention, **an increase/fall in £x/\$1 means a depreciation/appreciation of the British Pound with respect to the US Dollar.**

In other words, **the interpretation is exactly the opposite.**

> **Comments:**
> **username_0**: As the graphs I refer to in general are being used in economics analysis, does that mean that the second part of your answer supports my suspicion that perhaps the diagram I've provided as an example was incorrectly interpreted by the author? (the diagram is from economicsonline.co.uk)  
> **username_1**: An increase in £x/\$1 means a depreciation of the pound vis-a-vis the dollar, as you need more pounds to buy one dollar. This could be understood as a "push up" or an"increase" in the exchange rate. But the use of "exchange rate" without context is ambiguous, as the exchange rate can always be defined in two ways.  
> **username_0**: I've only come across the term "appreciation" of a currency in my economics reading, meaning a currency is worth more than it used to with respect to the same unchanged unit of another currency. I don't often see the terms "Increase" or "push-up" used in economic context. With this in mind, could you/anyone answer the first comment that I made under username_1's answer  
> **username_1**: Why is the interpretation incorrect? It is showing an increase in the exchange rate. The author has not spoken about an appreciation or depreciation (at least not in the graph you show). The term depreciation is very common too. [Here is an example](http://www.economist.com/news/britain/21707114-firms-may-struggle-absorb-extra-cost-pricier-imports-consumers-will-foot-bill-how).  

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