The pound sterling has an interesting relationship with the dollar and euro and its own unique fundamentals. There are a couple of instances in the last six months when a bullish position in the pound vs. the dollar would have been a loser, but a major winner against the euro. While the fundamentals of the dollar and euro probably were the major drivers, if the only way you could play the pound was vs. the dollar, you had no chance to take advantage of the pound’s outperformance of the euro (see “Pounding the euro”).
There are a number of crosses that are quite popular with traders and do not involve the greenback. One of the most popular, very widely traded is Japanese yen vs. G-7 currencies.
In so-called carry trades, Japanese yen vs. higher yielding currencies (Australian, Canadian and New Zealand dollar or the euro), traders are selling short yen and buying other currencies for a positive spread in interest rates. For example, in 2004, Japanese interest rates were close to zero and the Australian dollar was at 7.25%. Essentially, the trader was being paid handsomely by borrowing in Japan and depositing his funds in Australia
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