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The US Dollar (USD) to Pound (GBP) exchange rate is one of the world's most traded pairings. Below are some facts about each currency and the history of the pair.
The US Dollar, also known colloquially as the 'buck' or 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 ISO code is USD and its currency symbol is $.
The Federal Reserve (aka the Fed) is the New York-based central bank 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 consortium of private banks, meaning the US government is not able directly to control the rate of the Dollar on currency markets.
The US currency has a widespread influence outside the borders of its home country, with many countries holding Dollar-denominated assets, such as US Treasuries and stocks in the currency, while major commodities like oil and iron ore are often priced in USD.
Furthermore some countries, such as Ecuador and the Bahamas, use the Dollar as their official domestic currency. For this reason, there are thought to be in the region of $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.
The British Pound, aka Sterling, is the official currency of the United Kingdom, 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 - a 'staerling' - which was present on the coins after the Norman invasion.
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).
The USD / GBP exchange rate - also known as the 'cable' rate on FX markets - is one of the most traded currency pairings by volume.
In 2020, USD / GBP has been hovering in the £0.77 to £0.81 range, which is notably stronger than it was prior to the UK Brexit referendum when it fluctuated in the region of £0.65.
From historical charts dating back over the last 200 years we see that 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 Dollar has shown a general strengthening bias against the Pound, with the strengthening becoming more pronounced since the 2016 EU referendum in the UK when the Pound dropped some 16%,- although it has since recaptured some of this ground.
Looking at price charts of the exchange rate pairing it is clear that the Dollar to Pound (USD / GBP) exchange rate has generally become stronger over time.
For the US Dollar, the main driving factors for the USD rate are risk appetite and interest rates. With the world's strongest and largest economy the US is seen as a safe-haven, so whenever there is an uptick in global risk (such as the current coronavirus scare) investors tend to flock to USD.
At the same time, with so many commodities being traded in USD, any change in commodity prices 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.
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 GBP.
A slump in GBP 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.
The USD / GBP 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 March 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 weakening USD / GBP.
In the immediate future, the USD / GBP exchange rate is likely to be driven by the market’s assessment of global risk factors, especially relating to international trade and supply shocks.
The rate on this form is not available to individuals or business customers. This converter is based on the Interbank rate - this is used by banks to sell currency to each other and can indicate how the market is currently performing.
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