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GBPUSD Currency Pair

The GBPUSD Currency Pair

One of the largest and most commonly traded currency crosses on the forex market is the British pound sterling to the United States dollar. Often referred to as the “cable,” in reference to the transatlantic telegraph wires connecting London and New York, GBP/USD represents nearly 15% of the total daily volume of transactions on the forex.1)Retrieved 28 March 2016 http://www.traderforex.com/exchange-rates-pound-sterling-us-dollar.html With such a formidable volume, GBP/USD is a definitive major pairing and also a benchmark by which exchange rate valuations are measured globally.

Similarities between the two nations’ economies are numerous and striking in nature. Both rank among the global elite as defined by GDP purchasing power parity, with the U.S. coming in third globally2)Retrieved 28 March 2016 https://www.cia.gov/library/publications/resources/the-world-factbook/geos/us.html, and the U.K. rounding out the top ten.3)Retrieved 28 March 2016 https://www.cia.gov/library/publications/resources/the-world-factbook/geos/uk.html Both countries have large labor forces and rely heavily upon the service sector of their respective economies to generate the bulk of annual GDP.

Dating back to 1800, the GBP/USD exchange rate has been a staple of the world’s foreign exchange marketplace. From the years 1800 to 1900, the exchange rate, as reported by governmental sources, traded in a range of £1=US$9.97 (1864) to £1=US$3.62 (1812).4)Retrieved 27 March 2016 https://www.measuringworth.com/datasets/exchangepound/result.php. The fluctuations in the exchange rate from this period carry a special significance. At the time, the United States was a fledgling nation and still under the influence of both British political and economic capital. The ability of the U.S. to survive without British intervention was very much in question, and it was not until the dawn of the 20th century that the U.S. gained acceptance as an independent economic power.

Between the years of 1860 and the outbreak of WWI in 1914, nearly 60% of global trade was conducted in British pounds.5)Retrieved 29 March http://www.zerohedge.com/article/history-worlds-reserve-currency-ancient-greece-today The pound faded as the world’s currency standard until it was replaced during the WWII era. In 1944, the pound was pegged to the U.S. dollar in concert with the global implementation of the Bretton Woods monetary system. Upon the dissolution of the Bretton Woods system in 1971, the pound became a floating currency, with its value against the U.S. dollar being of constant concern to the British economy.

During the period of 1971 to 2015, the exchange rate ranged from £1=US$2.50 (1972) to £1=US$1.34 (1984).6)Retrieved 27 March 2016 https://www.measuringworth.com/datasets/exchangepound/result.php# Aside from periods of short-term volatility, the long-term stability of the pound/dollar relationship has been a calling card of the U.S. and U.K. political and economic partnership.


Key Facts GBP/USD

British Pound Sterling (GBP)

U.S. Dollar (USD)

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