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Pound Sterling to US Dollar Exchange Rate

The Pound (GBP) to US Dollar (USD) exchange rate is one of the world's most traded currency pairings. Below are some facts about each currency and the history of the GBPUSD rate.

British Pound Sterling (GBP)

The British Pound, aka Sterling, is the official currency of the UK, as well as a number of other small territories around the globe. One Pound (£) is subdivided into 100 pence. Its currency code is GBP and its currency symbol is £.

As the world's oldest continuously traded currency, the Pound is its fourth most traded, with only the exchange of US Dollars (USD), Euros (EUR) and Japanese Yen (JPY) coming ahead of it in volume. Sterling is issued by the Bank of England (BoE), which also sets interest rates for the UK economy. The term Pound Sterling was initially derived from the Old English term for small star, which was present on the coins at the time. Forex traders in currency markets often use the term 'Cable' to denote the Pound to Dollar exchange rate (GBP / USD).

Interesting fact: the British Pound is colloquially known by many names, including a 'quid' (£1), a 'pony' (£25), a 'monkey' (£500) and a 'grand' (£1,000).

US Dollar (USD)

The US Dollar, also known colloquially as the 'buck' and the 'greenback' is the world's reserve currency and is something of a safe-haven for investors. One Dollar is subdivided into 100 cents. Its currency code is USD and its currency symbol is $.

It is the US central bank the Federal Reserve (aka the Fed) which sets the long-term interest rate in the US and thereby exerts a strong effect on the value of the Dollar. Interestingly, the Fed is a coalition of private banks, meaning the US government is not able directly to control the rate of the Dollar on currency markets. Current US President Donald Trump favours a weaker Dollar along with a lower interest rate in order to stimulate the economy.

Many countries hold Dollar-denominated assets, such as US Treasuries and stocks, and major commodities like oil are often priced in USD. Furthermore, some countries such as Ecuador and the Bahamas, use the Dollar as their official currency. For this reason, there are thought to be some $10.5 trillion extra Dollars in existence around the world outside of the US economy.

Interesting fact: the term 'Dollar' was initially taken from the word 'thaler', which was a currency used in the Bohemian town of Joachimsthal in the sixteenth century.

British Pound US Dollar (GBP / USD) Exchange Rate

The Pound Dollar exchange rate (GBP / USD) - also known as the 'cable' rate on FX markets - is one of the most traded currency pairings by volume.

Looking at historical charts over the last 200 years, 1 GBP could buy 5 USD for much of the 18th century, hitting a high of $10 during the American Civil War. From the 19th century onwards the Pound has shown a general weakening bias against the Dollar, with the weakening becoming more pronounced since the 2016 EU referendum in the UK when the Pound dropped some 16%, although it has since regained some of this.

In 2020, the GBP / USD exchange rate has been hovering in the $1.28 to $1.30 range, which is markedly weaker than it was prior to the Brexit referendum when it enjoyed rates in the region of $1.55.

It is apparent from looking at price charts of the exchange rate pairing that the Pound to Dollar (GBP / USD) exchange rate has followed a generally weakening trend over the years.

Factors That Drive Pound Dollar (GBP / USD) Exchange Rates

The value of the British Pound (GBP) is influenced primarily by Bank of England rates and UK political/economic news. With much of the UK economy relying on consumer spending and financial services (stock, bonds, insurance products), any factor which threatens these sectors tends to have a detrimental effect on the Pound.

A slump in the Pound was observed immediately after the Brexit referendum in the UK, although the Pound has since made up most of these losses against the Dollar but remains weaker than it was pre-referendum.

For the US Dollar, the main driving factors for the USD rate are risk appetite and interest rates. As the world's biggest economy, the US is seen as a safe-haven, so whenever there is an upsurge in global risk (such as the current coronavirus scare) investors flock to USD.

At the same time, with so many commodities being traded in USD, any change in price can have the effect of influencing the Dollar rate. Furthermore, any change in policy or rates from the US Federal Reserve can see investors either flocking to or dumping USD, which all has an effect on the GBP / USD rate.

Outlook for GBP / USD

The Pound to Dollar (GBP / USD) exchange rate today is influenced mostly by geopolitical risk appetite, ongoing US-China trade discussions, and commodity prices With most central banks - including the BoE and the Federal Reserve - opting to pursue very low lending rate policies, Forex traders are focusing on less technical factors, even though data releases such as the US Non-Fram Payrolls report are traditionally seen as drivers for USD rates.

Another factor which influences the Dollar is the value of its main rival, the Euro (EUR). If the Euro strengthens this tends to have an effect of dragging down the value of the Dollar.

In Mar 2020 the Fed opted to lower US interest rates by 50 basis points - the first such move since the financial crisis in 2008. Considering this rate cut as a trading signal, investors are currently (Mar 2020) selling off selling off the Dollar, which is having the effect of boosting GBP / USD.

In the immediate future, the Pound US Dollar exchange rate is likely to be driven by the market’s' assessment of contributors relating to global risk factors.

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