Key Takeaways
- The GBP/USD is a heavily traded currency pair that shows how many USD are needed to buy one British pound.
- Economic indicators and central bank actions in both the U.K. and the U.S. can impact the GBP/USD value.
- The British pound historically has been stronger than the U.S. dollar, but has weakened since World War II.
- Major events like the Great Recession and Brexit have significantly influenced the GBP/USD exchange rate.
- The GBP/USD usually has a negative correlation with USD/CHF and a positive correlation with EUR/USD.
What Is the GBP/USD (British Pound/U.S. Dollar)?
The GBP/USD currency pair shows how many U.S. dollars are needed to purchase one British pound, with the pound as the base currency and the dollar as the quote currency.
It’s one of the world’s most traded forex pairs, reflecting heavy influence from economic data, central bank decisions, and major political or historical events in both the U.K. and the U.S. Because of its liquidity and sensitivity to news, GBP/USD plays an important role in the forex market and is a popular choice for active traders.
Interpreting the GBP/USD Currency Pair
The value of the GBP/USD pair is quoted as 1 British pound per X U.S. dollars. For example, if the pair is trading at 1.50, it means that it takes 1.5 U.S. dollars to buy 1 British pound.
The GBP/USD is among the top five most widely traded pairs in the world. It is affected by factors that influence the value of the British pound and/or the U.S. dollar in relation to each other and other currencies. For this reason, the interest rate differential between the Bank of England (BoE) and the Federal Reserve will affect the value of these currencies when compared with each other.
If the Fed strengthens the U.S. dollar, the GBP/USD rate might decline as the dollar gains against the pound.
$432 billion
The daily turnover of the GBP/USD pair as of 2022.
Historical Impacts: Recessions, Brexit, and Future Outlook
During the Great Recession, the value of the British pound fell sharply. In 2007, the GBP/USD pair traded to an all-time high above $2.10, before falling below $1.40 in 2009, losing over one-third of its value as investors flocked to the U.S. dollar—a so-called safe-haven currency. In the approximately five years following the Great Recession, the British pound recovered to trade around 1.6 against the U.S. dollar.
The GBP/USD dropped sharply in June 2016 when Britain voted to leave the EU. It fell 10% in one session and nearly 20% the month before the vote. The vote was seen as harmful to the British economy, leading investors to rapidly withdraw money from the U.K.
In September 2022, Liz Truss took over as U.K. prime minister, replacing the embattled Boris Johnson, who resigned amid multiple scandals. Upon taking the reins, Truss announced plans for widespread tax cuts, hoping to boost U.K. economic productivity.
However, investors and forex traders were apparently concerned that the economic policies of the Truss government could increase the country’s debt and exacerbate inflation, which was already at an elevated level. The market’s negative reaction sank the GBP/USD to an all-time low of around $1.03 on Sept. 26, 2022. Following a slight recovery, the pair traded in early October 2022 at just over $1.12.
In 2023, the rate climbed up again, whereby from March 2023 to June 2023 it had a steady increase, sitting at approximately $1.28 by the middle of June.
Important
From the last half of 2008 to early 2009, the British pound fell from $2.10 to below $1.40, losing over a third of its value. This is likely because investors considered the dollar a “safe haven” against market volatility.
Exploring GBP/USD Correlations With Other Currency Pairs
The GBP/USD tends to have a negative correlation with the USD/CHF and a positive correlation with the EUR/USD currency pairs. This is due to the positive correlation of the euro, Swiss franc, and the British pound.
Prior to the Great Recession, the GBP/USD was highly correlated with the Australian dollar and the New Zealand dollar, as investors purchased these high-yielding currencies in what is known as a carry trade strategy.
Analyzing GBP/USD Through Historical Data
Although the British pound has been historically stronger than the U.S. dollar, it has steadily weakened from a pre-World War II value of around $5 to the present value of around $1.26 as of Nov. 15, 2024. This is likely due to the relative decline of British economic power and the loss of most of the United Kingdom’s overseas colonies, combined with the increasing strength of the U.S. economy.
Even though it has declined overall, the pound has also fluctuated up and down in the short term. In 1972, it briefly regained a high of $2.65, before falling the next decade to a low of $1.05.
In the 21st century, the pound has continued to trend downward, ranging from a high of $2.08 to a present value just above $1.08. Economic uncertainties surrounding the coronavirus pandemic, combined with the loss of the European market, have overall weakened the prospects for the British economy.
How Do I Calculate GBP vs. USD?
To convert British pounds into U.S. dollars, simply multiply the number of pounds by the GBP/USD exchange rate on the day of conversion. For example, if you were converting 800 British pounds into U.S. dollars on June 17, 2023, you would multiply £800 × $1.28 (the exchange rate for the day) to get $1,024. To convert from dollars to pounds, you would simply divide by the exchange rate, rather than multiply.
How Can I Trade GBP vs. USD?
You can trade GBP and USD, along with any other currency pairing, through a forex broker. A forex broker is just like a stock brokerage, except they focus on foreign exchange products.
Is GBP Stronger Than USD?
The British pound (GBP) historically has been stronger than the U.S. dollar, meaning a single pound is worth more than a single dollar; however, the pound has weakened against the dollar, particularly since the financial crisis of 2008.
Why Is the British Pound So Strong?
The pound historically has been stronger than the U.S. dollar, with pound values ranging from $1.08 to $2.08 over the past 20 years. Currency strength is closely tied to interest rates, investor preferences, and the relative strength of a country’s economy. Another important factor is the number of dollars and pounds in circulation: Even though one British pound is worth more than a single dollar, there are many more dollars in circulation than pounds.
The Bottom Line
The GBP/USD is the world’s third-most traded currency pair, showing how many U.S. dollars are needed to buy one British pound. Its value shifts with economic policy from the Bank of England and the Federal Reserve, as well as major events like Brexit, and it often correlates with EUR/USD while moving opposite USD/CHF. Converting is straightforward; multiply pounds by the current rate, and traders can access the pair through forex brokers.
