UK Pound Sterling Exchange Rate

By: EconomyWatch   Date: 23 November 2010

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The Pound Sterling is the currency of the United Kingdom. The GBP currency is the world's oldest currency that is still in use. It is the fourth most-traded currency in the foreign exchange market after the Euro, US dollar and Japanese yen. The Pound Sterling is the third-largest reserve currency, after the US dollar and the Euro.

Pound Sterling: History

The GBP currency was introduced as paper money in 1694, with the establishment of the Bank of England. The Pound Sterling waspegged to the gold standard in 1816. However, with the outbreak of World War I, the gold standard was temporarily abandoned. The British economy weakened significantly after the war ended, with debts of over £850 million. In order to curb the situation, the Pound Sterling was pegged to gold at the pre-war rate, in 1925. Due to the Great Depression, the UK moved away from the gold standard in 1931. The currency was later pegged to the US dollar under the Bretton Woods system in 1940, at £1 = $4.03, till the end of World War II. The currency was floated in 1971.

 

GBP Currency: During Recession

The Euro began appreciating gradually against the US dollar in 2008, with the slowdown in the US economy gaining momentum.The British pound, which fluctuates in parity with the Euro, did not rise against the US dollar. The British pound began declining amidst a number of crises, including the weakening stock market around the world and the housing problems in the US. The subprime problems in the US particularly impacted the UK, since the British economy is driven by the financial services sector.

UK Pound Sterling Exchange Rate

The Pound typically fluctuates in accordance with the Euro. In 2006, the Bank of England cut interest rates in light of inflationary concerns in the UK, leading to an appreciation of the pound vis-à-vis other important currencies. The poundcontinued to appreciate in the following year, while the US dollar declined. The UK currency hit a 26-year high of $2.1161 on November 7, 2007. However, with the heightening of the global financial crisis since December 2008, the Pound lost value at a rapid rate and reached a 24-year low of $1.35 per £1 in January 2009. The Pound also weakened against the Euro, depreciating to 1.25GBP in April 2008. It continued to decline throughout the year, hitting an all-time low of 1.0219GBP in December. The Pound rose in value in early 2009 and stood at 1.06GBP at the end of March.

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