Dollars to Pounds | Discover Why Is the British Pound Stronger than USD

February 19, 2020
USD GBP | The value of the British pound (GBP) has been consistently stronger than the US dollar (USD) with a value of US $1.35 to $1.75.
Dollars to Pounds | Discover Why Is the British Pound Stronger than USD

The value of the Dollar to Pounds (USD to GBP) has been consistently more potent than the U.S. dollar (USD) with a value of U.S. $1.35 to $1.75.

The fact that one currency is seemingly more potent than the other is not a necessary indication of a more robust economy altogether. Taking Japan, for example. Japan is considered one of the strongest economies in the whole world, but at the same time, the Japanese yen exchanges at a value that is considerably less than US$1.

In a foreign exchange field, the economy of Cyprus is smaller than that of the U.S. Cyprus’ euro currency value fetches more than the U.S. dollar.

Dollar to Pounds / USD to GBP | Judging a Currency’s Worth

british pound strength

A significant disservice for any individual to look at the value or the strength of a currency concerning another at a static point in time. It is borderline meaningless. Therefore, to have a greater understanding of how stable currency is, you have to monitor the correlation between currencies continually.

There are some underlying factors including inflation, supply and demand coupled up with other economic factors that cause shifts to the strength of a currency relatively. It is such factors that will ultimately indicate the value of a currency.

The USD GBP Rate history

Focusing on USD GBP. For a very long time, especially from 2012 to 2018, the pound to dollar is stronger. The British pound has been relatively more robust than the U.S. dollar with a value of U.S. $1.35 to $1.75. This fact raises a lot of questions just as much as it confuses people to try to understand why the value of the GBR has been consistently more reliable for all these years.

Despite the fact that the U.S. has a stronger economy than Great Britain. The comparison between these two currencies is always the bone of contention because they are the two most-traded currencies.

Simply put, the nominal value of any one country’s and the economic strength have almost nothing to do with one another. Still on Japan, even with a gross domestic product of Japan being over 50% larger than that of the UK, it took approximately 147 Japanese yen to equal a British pound and 112 Japanese yen to equal a U.S. dollar.

Relative value vs. Nominal value | Dollar to Pounds

pounds to dollars

The nominal value of a currency does not precisely matter because it is relatively arbitrary. The bone of contention here is how the value of the currency moves over time concerning other currencies. In this case, convert dollar to pounds rate USD GBP over time.

For the past many years, the value of the British pound has been more durable than the U.S. dollar, but this trend is seemingly changing from October 2018. The pound started stagnating at $1.4 to one British pound, a significant drop from $1.75 to one British pound as of July 2014.

Indicative of economic conditions that are deteriorating in the U.K. against an ever-improving U.S. economy.

The Consequences of Brexit to the USD to GBP

British citizens went to polls on June 23, 2016, and to vote in favour of leaving the European Union (E.U.). The UK had been a member of the E.U. since 1973.

It was clear that a majority of Economists hoped that the U.K. would vote to remain in the E.U. because of the impending economic consequences upon Brexit. The close trading relationships between the U.K. and the E.U. is one of the reasons the GBP to EUR is also a significant comparison when it comes to currency rate strength.

The decision to exit the U.K. had a considerable effect, primarily roiling global markets and shocking oddsmakers. Consequently, it has a significant impact on the value of the British pound—the cost of pounds to dollars plummeted by 8% in just 24 hours.

In nominal terms, the pound remained strong as preferred currency, but more investors still chose to abandon the currency moving to the U.S. dollar, indicating that reason being the declining relative value of the British pound.

Factors That Can Contribute to a Stronger Dollar to Pounds

The major players that make the pound to dollar exchange rate strongly against the United States dollar are supply and demand. However, other critical players affect the market for the pound, and they include:

  • Savings: When U.K. banks raise the interest rates, the investment or the holding savings in British pounds become more appealing since traders will get more back for their investment. This means that the demand will increase thus making it stronger.
  • Public finances: the amount of debt the government has or bank balance can easily affect the exchange rate, currency rate converter pounds to dollars (USD to GBP), dollars of Canada to pounds, New Zealand dollar to pounds or dollar of Australia to pounds.
  • Prices: If goods from the U.K. are cheaper compared to those abroad, foreign exchange businesses will find them more attractive. These businesses will prefer the pounds to dollars to buy their goods, thus pushing up the exchange rate. (check the GBP USD chart)
  • Speculation: How the British pound performs is very vulnerable to speculators who sell or buy the pound basing their purchasing needs on future expectations.
  • Economy: When a country has a strong economy, it means it has a strong currency because many other countries would want to invest there. They will have to buy the local currency to invest, which pushes up the demand of the pound.

Dollar to pounds | Bottom-line

the gbp usd chart vs dollars to pounds

Even though the value of the USD GBP  has been consistently lower in the past years, the risk premiums that are attributed to the negotiations of Brexit will, in all likelihood, ensure that the British pound’s gains are capped.

The dollar to pounds exchange rates is forecasted to rise since the GBP/USD exchange rates are falling if the possibility of the United Kingdom trading with the E.U. on terms laid down by WTO by year’s end remains.

Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances or needs.

Risk Warning: Our products are traded on margin and carry a high level of risk and it is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved.

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