The extent to which movements in the sterling and franc bilateral exchange rates are associated with changes in the dollar-deutschemark exchange rate is measured. In the case of the pound we find, in contrast to the impression that might be gained from previous studies, that its linkage to the dollar has been, since the late 1990s, as high as it was in the late 1970s. In the case of the franc, we find that it has for some time been a powerfully deutschemark-linked currency. This calls into question the view that there has been significant 'dollar-deutschemark polarity' with respect to the franc in the recent past. We suggest that policymaker guidance and market rules of thumb may partially explain the developments we observe. Copyright (c) Scottish Economic Society 2003.
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