Sterling’s Demise Against the Dollar

Current GBP Rates (GBPUSD):

If you want to conduct a spot FX transaction these are the current GBP/USD rates

1 Pound is $1.3332 USD

50 Pounds are $66.6611 USD

100 Pounds are $133.3221 USD

1,000 Pounds are $1,333.2213 USD

2,000 Pounds are $2,666.4427 USD

10,000 Pound are $13,332.2134 USD 

1 Dollar is £0.7501 GBP

50 Dollars are £37.5032 GBP

100 Dollars are £75.0063 GBP

1,000 Dollars are £750.0630 GBP

2,000 Dollars are £1,500.1260 GBP

10,000 Dollars are £7,500.6300 GBP 

Historical GBPUSD rates graph:

 Source For This Graph

Future Prospects and Predictions – GBP vs. USD

Money Transfer Comparison’s authors and editors still believe in a strong dollar under the growing U.S economy in spite of some market turbulence in 2019. Current US growth is below expectations but we are seeing a general slowdown in economies globally, in no part down to the growing US and China trade war.   China is also experiencing a general and gradual slowdown of its GDP output (but to a greater extent than the US) and  its growth numbers are not meeting targets. Investors are wary of the wider global impact on China’s trading partners, including Japan and Australia. This together with the relative instability in Europe for both GBP and EUR, we believe the Dollar will remain the safe haven for investors.  Even despite the growing trade war between the US and China and the US economy growing at a slower rate that 2017 and 2018. 

With growing concerns from the impact of Brexit we believe Sterling could hit new lows in 2020 if there is a ‘no deal’ outcome. In any case, leaving the EU will see a general slowdown in the UK economy over the next 5 to 10 years so the Pound is expected to maintain its comparably weaker position against  most major currencies and in particular, the US dollar.

 

Recent GBP Vs. USD Updates

Updated November 2019: After it became clear the new withdrawal agreement would not pass a House of Commons vote the UK broke its deadlock by agreeing to a new election in December. Hopes remain of a Coservative majority and passing the newly agreed Brexit deal. GBPUSD sits just below 1.30.


Updated October 2019: Sterling sees some recovery on news of a new withdrawal agreement negotiated with the EU and legislative changes aiming to reduce the chance of a no deal Brexit, GBPUSD rising over 1.30 for the first time since May 12th. 


Updated September 2019: With even more uncertainty,  Boris Johnson facing a showdown in Parliament and perhaps another general election,  Sterling hits its lowest ever rates against the US dollar.


Updated June 2019: With even more growing uncertainty after PM Mays resigned, and it’s clear the withdrawal agreement will not be ratified by the UK parliament, GBPUSD  keeps dropping erratically and its worst almost touching 1.20.


Updated Dec 2018: With high level of uncertainty in the UK in regards to exiting the EU, the Sterling is losing grip and continues nose diving to as much as 1.25.


Updated April 27 2018: Early April, the Pound has been reaching new heights against USD not seen since the Brexit decision, touching 1.44 briefly. Since then, the US GDP reports have strengthened the dollar, the insecurity in regards to Brexit has pushed  Sterling down, and the rate moved down more than 3%.


Updated Dec 05 2018: The GBPUSD rate that has reached a full recovery of 1.41 by April has declined significantly to levels of 1.27-1.29, based on two factors – the strengthening US dollar after 3 interest rate increases over the year, and the continued weakness and uncertainty of Sterling.

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Historical Overview: Sterling’s demise against the dollar

Optimism surrounding the UK economy triggered Sterling strength in the period ahead of the global financial crisis and GBP/USD moved to levels which were substantially overvalued. However, in the past 10 years, two major shocks have put GBPunder heavy selling pressure. Sterling slumped during 2008 as the financial crisis intensified and it was then tested further to 31-year lows after the 2016 Brexit vote.

Graph Taken From This Source

Pound Sinking In The Ocean Showing Depression Recession And Economic Downturns 3d RenderingAugust 2019 Onwards: Slight recovery for Sterling

The US is currently growing at an annualised 2%, lower than its 3.1% target and the fed are expected to make one final rate cut this year, taking the target rate to between 1.5-1.75%. None of the policy makers however are expecting to set rates below 1.5% until at least the end of 2022, and only if the economy is really slowing.
News on a new withdrawal agreement for the UK has temporarily pushed sterling higher and it has gained in value against the dollar to recover from its all time lows. GBPUSD pipped 1.30 before levelling out to around 1.28 towards the end of October,

April 2018 to August 2019: Sterling slips back to lows

Pound Sinking In The Ocean Showing Depression Recession And Economic Downturns 3d RenderingThe US dollar gained significantly against all currencies throughout 2018 because of four rate hikes by the Fed. And generally maintained its strength throughout 2019 despite two interest rate cuts. Of the four rate hikes in 2018, whilst the first one did not hit the market by surprise, the September and December rate hikes made the market understand the no-interest era was gone in the US. The fed then came under heavy pressure from Donald Trump in 2019 to slash interest rates in a complete change of policy to boost consumer spending.

But whilst the fed did lower rates at two points, taking base rates to within 1.75-2%, it didn’t cut rates anywhere near as much as Trump desired. In addition to this, the pound had been showing signs of weakness based on Brexit – the closer the date was ticking to March 2019, when the UK was originally set to leave the EU whether there was an agreement in place or not, the higher the levels of concern and panic. Prime Minister Theresa May demonstrated a lack of support for her actions and the deal she reached with the EU was rejected by parliament multiple times., Eventually ending in Theresa May’s resignation in order to make progress on the issue of Brexit.

January 16th 2017 until April 2018:  Sterling recovers from 30-year lows

Pound Sinking In The Ocean Showing Depression Recession And Economic Downturns 3d RenderingSterling dipped to 31-year lows just below 1.2000 in January before recovering some ground as the economy regained momentum. Sentiment, however, weakened again from June following the UK General Election. The government’s inability to secure a majority increased fears of instability with fears that Brexit negotiations would become even more difficult given UK weakness.

Sterling selling was intensified by a strong Euro recovery as stronger growth rates triggered expectations of an ECB move to tighten monetary policy while UK rates remain at record lows.

The dollar spiked higher following the unexpected election of US President Trump amid expectations of aggressive tax cuts which would tend to strengthen growth and potentially trigger a faster pace of Fed tightening. Confidence in Trump and the reform agenda faded rapidly and allowed GBP/USD to stabilise around 1.30 as the dollar came under sustained pressure.

June 23rd 2016 – January 15th 2017: Brexit shock triggers Sterling slump

The June 23rd UK referendum on whether to remain in the EU was an important shock to global markets, especially as there had been strong expectations that late momentum would be more likely to favour the remain side.

Fears surrounding the long-term UK outlook increased with expectations that underlying growth trends would be weaker and longer-term deterioration in the economic performance.

The Bank of England also cut interest rates once again to a record low of 0.25% which undermined Sterling confidence. Selling culminated in a flash crash in early October with GBP/USD losing over 5% in a matter of minutes before recovering ground.  


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July 2014 – June 22nd 2016: Dollar strength dominates

During this period, there were fluctuations in Sterling confidence with volatility, for example, surrounding the Scottish independence referendum.

The UK economy was relatively stable with solid underlying growth. The Bank of England, however, was unable to find a reason to raise interest rates and Sterling lost ground.

The main focus was on the dollar which appreciated sharply from July 2014. The Federal Reserve moved to end the quantitative easing programme with bond buying completed in October 2014.

Crucially, the Federal Reserve was the only major central bank which was tightening monetary policy. The ECB was cutting interest rates amid fears surrounding deflation while the Bank of Japan maintained a very aggressive easing. In this environment, the dollar gained firm support with strong gains over the second half of 2014, although Sterling also maintained a generally robust tone.

November 2010 – 2014: US and UK recovery, relative calm

Following the financial crisis, the US and UK economies gradually recovered ground during the 2011-2014 period.

The Federal Reserve was still very uneasy surrounding the pace of recovery and the quantitative easing programme continued. The Fed announced a second round of bond purchases with purchases of government bonds of $75bn per month with total purchases of $600bn.

The Fed also announced a policy to keep long-term interest rates lower and there was a third round of government bond purchases between September 2012 and December 2013.

The expansionary Fed policy was important in restraining dollar support, although the Bank of England also maintained interest rates at extremely low levels of 0.50% which limited the potential for Sterling gains.  Overall, the UK currency eventually advanced to the 1.70 area before fading.

2008 – November 2010: global financial crisis, dollar gains by default

The first real evidence of the great financial crisis emerged in August 2007 with redemptions halted in two property funds.

Stresses quickly emerged in the money markets as wholesale lending started to seize up which put pressure on UK financial institutions.

The crisis intensified rapidly in early 2008 with Northern Rock nationalised while Lloyds Bank and the Royal Bank of Scotland both required government support to avoid collapse.

The banking crisis was an important factor in pushing the UK economy into a deep recession and the Bank of England was forced to cut interest rates very aggressively to stabilise financial conditions.

The US economy also suffered a deep recession and the collapse of Lehman Brothers Bank was a crucial factor in intensifying the global crisis.

In times of financial turmoil, however, there tends to be demand for US Treasuries and the dollar on defensive grounds and there were capital inflows into the US currency. An important feature was very high volatility across all asset classes.

The combination of dollar recovery and heavy Sterling losses triggered a massive GBP/USD decline to below 1.40 from near 2.00.

July 2001 – March 2008: the great dollar slide

Origami dollar arrow pointing down over a world mapThe dollar index peaked just above the 121.0 level in July 2001 before embarking on a prolonged slide over the next 3 years with the dollar index dipping to lows near the 80.0 level.

The US currency initially came under pressure in the face of interest rate cuts and a slide towards recession. The Federal Reserve continued to cut interest rates as the economy moved into recession and rates eventually declined to lows of 1.0% in 2003.

The US currency continued to be undermined by a loose monetary policy over the next 3 years. In contrast, there was increased optimism surrounding the UK outlook as hype surrounding the Blair government hit a peak which boosted Sterling support.

GBP/USD broke above 1.90 during 2004 and, although there was a retreat to the 1.70 area in 2005, the UK currency regained ground and rallied to above the key 2.000 level in 2007 as the dollar index hit a low of below 74.0 in early 2008.

Jan 1st 1999 – Jan1st 2002: Dollar in charge

The Federal Reserve tightened monetary policy during 1999 and rates peaked at 6.5% in July 2000 from 4.5% at the beginning of 1999.

Although there were significant fluctuations in UK interest rates, there were only limited net changes as US policy dominated. GBP/USD declined to lows just below 1.3700 in June 2001.

 

Summary of GBPUSD History

Historically, Sterling has had a pattern of mean reversion with the currency moving back towards fair value against the dollar after periods of under and over-valuation. Sterling is now under-valued once again, but this time around there is a genuine reason for concern with the coming brexit which to date has not been negotiated through. If the UK fails to find an adequate replacement for free trade with the EU, the British economy will suffer and as a result the Pound Sterling will continue trading at current levels or lower.

If  Brexit is negotiated to the satisfaction of the markets, or even better, is reversed by lawmakers, then we can expect the GBP/USD rate to climb back to at least 1.50. The question is whether this is even a possibility, and as time passes by, it most certainly looks less possible.

Our assumption is that the pound will continue to decline against a solid dollar supported by an American president whose main agenda is to cut taxes and strengthen the economy.  Just as we made a prediction last year that GBPUSD could hit 1.20 we may well see the same in the coming 12 months if the UK cannot find a way forward for a Brexit deal.

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