About Pip Theory

Pip Theory started as an internal desk tool. The meter proved useful enough that we opened it up, and the tools and writing grew around it. The thread through all of it: every claim ties back to something measurable, and nothing here tells you what to buy.

How the meter works

The Macro Currency Strength Meter scores each of the eight major currencies — USD, EUR, GBP, JPY, CHF, CAD, AUD and NZD — from +100 (very strong) to −100 (very weak), refreshed every four hours. Strength is always relative: a currency is only strong or weak compared to the others.

The score is the output of a proprietary quantitative framework that synthesises macroeconomic and market data into a single number. It is grounded in decades of academic research on what drives exchange rates, and it is mechanical, not opinion — the same inputs always produce the same score, so it never contradicts itself from one day to the next.

What it weighs

Rather than leaning on any single indicator, the model evaluates each currency across five broad dimensions, each contextualised against its own history:

• Interest Rates — the yield a currency offers relative to its peers.
• Growth — the strength and momentum of the underlying economy.
• Positioning — how the world's largest investors are positioned.
• Risk Regime — safe-haven versus risk-seeking capital flows.
• Commodities — global trade and terms-of-trade dynamics.

These are distilled into one comparable score and tracked over time. A pair's reading follows from the gap between its two currencies' scores. How the inputs are weighted and combined is the proprietary part; the inputs themselves are standard, public macro data anyone can inspect.

Research foundations

The model is our own synthesis, but every dimension it weighs comes from the established literature on what moves exchange rates. A few foundational references:

• Interest rates & carry — Lustig, Roussanov & Verdelhan (2011), "Common Risk Factors in Currency Markets," Review of Financial Studies; Fama (1984), "Forward and Spot Exchange Rates," Journal of Monetary Economics.
• Fundamentals & horizon — Meese & Rogoff (1983), "Empirical Exchange Rate Models of the Seventies," Journal of International Economics; Mark (1995), "Exchange Rates and Fundamentals," American Economic Review.
• Positioning — Klitgaard & Weir (2004), "Exchange Rate Changes and Net Positions of Speculators in the Futures Market," FRBNY Economic Policy Review.
• Risk & safe havens — Ranaldo & Söderlind (2010), "Safe Haven Currencies," Review of Finance; Brunnermeier, Nagel & Pedersen (2008), "Carry Trades and Currency Crashes," NBER Macroeconomics Annual.
• Commodities — Chen & Rogoff (2003), "Commodity Currencies," Journal of International Economics.
• Valuation & momentum — Asness, Moskowitz & Pedersen (2013), "Value and Momentum Everywhere," Journal of Finance; Menkhoff, Sarno, Schmeling & Schrimpf (2012), "Currency Momentum Strategies," Journal of Financial Economics.

Pip Theory is an independent synthesis and is not affiliated with or endorsed by these authors.

Data & sources

The model is built entirely on official, publicly available data:

• Central banks & government statistics — policy rates, sovereign bond yields, inflation, employment and growth releases.
• Positioning — speculative futures positioning from the CFTC's weekly Commitment of Traders report.
• Market data — exchange rates, a market-volatility gauge and commodity prices.

Most series arrive through the Federal Reserve Bank of St. Louis's FRED database. Inputs refresh every four hours, and each currency page shows the "as of" date of the readings behind its score.

The tools

Everything in the tools section started as something we needed on our own charts — a kill switch after a bad Tuesday, completion lines because range bars kept surprising us. They are free, they never phone home, and the download pages say exactly what each one does and doesn't do. Where a tool draws on the meter, the page says so; nothing requires it.

How to read all of this — honestly

Treat the meter as macro context, not a trading signal. A high score means the fundamental wind is at a currency's back; it does not predict tomorrow's price. Markets often price the macro picture in advance, and no mechanical model sees shocks coming. The score is the slow tide over weeks, not the chop.

What this is NOT

• Not financial advice. Nothing here is a recommendation to buy, sell or hold anything.
• Not a signal service. No entry levels, stops or targets.
• Not personalised. Everyone sees the same numbers; it doesn't know your situation.
• Not a crystal ball. The model can be wrong, and markets move on things it can't measure.

Markets carry the risk of loss. Past performance does not indicate future results. Consult a licensed financial adviser in your jurisdiction before acting on anything you read here.

Privacy & advertising

Pip Theory is free and supported by advertising (Google AdSense). Ad partners may use cookies for ad delivery and frequency capping. Full details — including how to opt out of personalised ads — are in the Privacy Policy. Questions: contact@piptheory.com.