How The Pound May Strengthen Against Dollar

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How The Pound May Strengthen Against Dollar

How The Pound May Strengthen Against Dollar

With an increased base rate, the British banks believe the pound may strengthen against the United States dollar. The currency pair is mostly preferred by forex traders, who are optimistic about the GBP.

The pound sterling is directly reciprocal to the interest rate and basically during the inflation period. However, the rise in the interest rate leads to jumps in the costs of credit cards, mortgages and other servicing debt.

The pound sterling dropped to a great low on March 11, 2022, and the first time in more than a year against the USD and it was a fall in three consecutive weeks even though the UK economy jumped more than expected.

The British economy was up by 0.8 percent in January and it was the strongest since June 2021 while most economists expected the growth of just 0.2 percent.

However, it supported little to the pound and economists are concerned mostly due to the ongoing Russian invasion of Ukraine. The second quarter seems uncertain as the commodity prices are rising across the world and economic confidence is getting narrowed.

The pound was at $1,3052 against USD and it is lowest since November 2020. Simultaneously, the prices rise in the US last month led to the largest annual inflation jump in about four decades and it is believed the Federal Reserve may raise the interest rates soon.

In early 2020, during the initial months of the COVID-19 pandemic, the GBP/USD currency pair fell to a great extent from January's 1.3250 to 1.1477 in March. The rebound was witnessed with vaccine optimism. The pair moved above the pre-pandemic level in early 2021 and reached 1.4247 in May.

The pair couldn’t hold the level for long thereafter and the low trend started in June 2021. It was around 1.337.

GBP/USD Basics

The value of it is quoted as one unit of the British pound against x USD. This refers to buying of 1.5 USD against 1 British pound if the pair is trading at 1.50. The pair is one of the top three most traded in the world. The rate mostly relies on the interest rate differential between the Federal Reserve and BoE.

The pair traded at around 2.10 in 2007 and it was an all-time high. The value dropped to 1.40 and even less during the 2008 recession. Traders started flocking to the USD. The recovery was witnessed about five years later and the pair was traded at around 1.6.

A sharp fall was lately witnessed in 2016 and it was the period when Britons voted for Brexit, leaving the EU bloc. The drop was even about 10 percent at one point.

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