British pound is stronger than US dollar. Here's why.
Explore why the British pound remains stronger than the US dollar, from historical highs and recent recoveries to political changes and positive economic surprises driving GBP strength.
Key points
- GBP/USD has never fallen below parity, or 1.0000
- GBP/USD is up 20% from 2022 lows
- The Bank of England has kept interest rates close to the US at 5.25%
- Q1 GDP growth and a new political ruling party have spurred currency strength
GBP/USD has never hit parity
The British pound has consistently maintained a higher value than the U.S. dollar, with the GBP/USD exchange rate peaking at 2.1000 in 2007. This historical strength underscores the sterling’s longstanding resilience and its positioning in the international forex market.
Pound bounces +20% from 2022 low of 1.0500
Since hitting a low of 1.0500 in 2022, GBP/USD has made substantial gains, trading between 1.2000 and 1.4000 during most of the post-Brexit era. Recently, it has been trending towards the upper range of 1.4000, indicating a strong recovery and growing investor confidence.
Interest rates hold unchanged from Bank of England
The Bank of England has maintained the UK's interest rates at 5.25% since August 2023. With the upcoming August 2024 meeting, market speculation about potential rate cuts is evenly split, suggesting a cautious approach by traders monitoring UK monetary policy. If the BoE elects to hold again in August, its possible the US begins easing rates before the UK. Such a scenario would likely rally the pound even further against the dollar.
UK GDP surprised in Q1
UK's GDP growth exceeded expectations in the first quarter, registering a 0.7% increase compared to the anticipated 0.4%. This positive surprise indicates underlying economic strength, boosting investor sentiment towards the British pound.
GBP rallies amid political shift in UK election
The British pound picked up more momentum on July 4th as the Labour Party secured a majority over the Conservative Party for the first time since 2010. This political shift has spurred optimism in forex markets about potential policy changes and their implications for economic growth.
Will the pound get stronger?
The future strength of the GBP/USD will be shaped by key indicators such as interest rates, employment, and overall economic performance. It is also important to remember the importance of relative strength, as US data has just as large a part in moving the GBP/USD exchange rate as UK data. Traders should closely monitor these factors to gauge potential movements in the currency pair's value.
How to trade British pound
- Open an account to get started, or practice on a demo account
- Choose your forex trading platform
- Open, monitor, and close positions on GBP pairs
Trading forex requires an account with a forex provider like tastyfx. Many traders also watch major forex pairs like EUR/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.
You can help develop your forex trading strategies using resources like tastyfx’s YouTube channel. Our curated playlists can help you stay up to date on current markets and understanding key terms. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.
Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.