Our Group: CySEC CIMA FSA
Trading

Dollars to Pounds | Why Pounds Are Stronger Than US Dollars


December 12, 2020
The value of Dollars 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.
Dollars to Pounds | Why Pounds Are Stronger Than US Dollars

Updated 12/12/2020

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  1 USD.

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

Dollars to Pounds Important Factors About These Currency’s Worth

dollars to pounds

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 better understand how stable currency is, you have to monitor the correlation between currencies continually.

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

The Rate history of Dollars to Pounds

Focusing on USDGBP. 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 many questions just as much as it confuses people to understand why the value of the GBR has been consistently more reliable for all these years.

Although 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.

Put, the nominal value of any one country’s and 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

Stronger pounds than 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 dollars to pounds rate USD to GBP over time.

For the past many years, the British pound’s value 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 the polls on June 23, 2016, and voted 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 most Economists hoped that the U.K. would vote to remain in the E.U. because of Brexit’s impending economic consequences. The close trading relationships between the U.K. and the E.U. is one reason the GBP to EUR is also a significant comparison 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 the preferred currency. However, more investors still chose to abandon the currency, moving to the U.S. dollar, indicating the reason being the declining relative value of the British pound.

Factors That Can Contribute to a Stronger Dollars to Pounds

The major players that make the pound 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), Canada’s dollars to pounds, New Zealand dollar to pounds, or dollar of Australia to pounds.
  • Prices: If goods from the U.K. are cheaper than 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 GBPUSD chart)
  • Speculation: How the British pound performs is very vulnerable to speculators who sell or buy the pound dollar, basing their purchasing needs on future expectations.
  • Economical: When a country has a strong economy, it has a strong currency because many other countries want to invest there. They will have to buy the local currency to invest, which pushes up the pound’s demand.

Dollar to pounds Bottom-line

dollars to pound rate for Dec 12, 2020

 

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.

You can complement this article with this other from Investopedia: Why the British Pound Is Stronger Than the U.S. Dollar


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.

Categories: Trading , Analysis , News

WE ACCEPT
visa mastercard paypal transfer skrill sofort giropay trustly

Open your EverFX account

It takes only a few minutes and even fewer clicks to enter the promising and exciting world of trading. Take the first step by clicking on the link below.
Trading involves significant risk of loss
Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 65% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please consider our Risk Disclosure