On the heels of ‘Brexit’, Britain’s decision to leave the EU on June 23 2016, the British pound (GBP) fell dramatically. Just one day later, the pound suffered its steepest one-day fall to close at $1.36. Fears over a possible UK recession further brought the pound to a 31-year low — a larger drop than during the financial global crisis of 2008.
If the pound continues to depreciate, UK’s central Bank of England may be forced to intervene by purchasing more pounds or raising interest rates. Such a move could affect homeowners in the UK. In the GBP’s steepest one-day fall, the pound closed at 1.36 USD on Friday, 24 June 2016.
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What Brexit means for the United States
Experts are unable to predict what the future holds in the global markets. The UK is the world’s fifth-largest economy, and it’s also a strong US trading partner. While the UK’s unprecedented decision to leave the EU has triggered a stronger dollar, the US economy could feel negative repercussions of Brexit.
Stronger GBP–USD exchange rates are nice for travel but ultimately bad for trade. Trading volume between the two countries makes up 0.5% of US economic activity, and experts are concerned about a domino effect on the global economy.
What is brexit?
Short for “British exit,” Brexit refers to the historic vote of the British people on June 23, 2016, to leave the European Union. The full impact of Brexit on the global market is unclear, as is the process of how the UK will go about removing itself from the EU. However, we’re already seeing its effect on the USD–GBP exchange rate.
Lock in a competitive exchange rate using a money transfer
Many international money transfer services offer limit orders so you can lock in a desirable GBP exchange rate for any future transfers. This is handy for Americans with business in the UK, because you can purchase more goods with fewer dollars. If you need to transfer money overseas to the UK, now is a good time to lock in a GBP rate before it recovers.
Note that your recipient will need to have a bank account established in the UK, although there are some exceptions. You will need your recipient’s bank name, iSWIFT code and account number.
What is a swift code?
Short for the cumbersome Society for Worldwide Interbank Financial Telecommunication, a SWIFT code is an international bank code used for incoming transfers. Overseas banks each have a unique SWIFT code that identifies which bank to send money to.
Exchange rate history – US dollar to British pound
Great Britain’s pound sterling has a long history of trading with the US dollar. It’s the world’s oldest currency still in use and also the fourth most traded currency on global forex markets.
The US and the UK have maintained strong economic and political ties throughout the 18th, 19th and 20th centuries, making the USD–GBP exchange rate one of the most eagerly watched currency pairs in the world. Throughout history, the US dollar has performed weaker against the pound, especially during the early years of the United States.
From February 2002 to October 2015, the British pound traded at an average $1.67 to the dollar, rising as high as $2.09 in 2007.
Forecasting the USD to GBP exchange rate based on historical data
The past can be a good indicator of the future. Depending on sociopolitical atmosphere, interest and inflation rates, foreign trade, public debt, and export to import price ratios all influence exchange rates. Below you can find the average exchange rate for the past ten years.
British pound historically strong against US dollar
From late 2002 onward, the burst of the dot-com bubble and high levels of mortgage debt weakened the US dollar. This lead to steady losses against the pound until it reached $2.09 against the pound in early November 2007. At the same time, the mortgage crisis pushed the value of the US dollar lower relative to many other major currencies.
Soon after, global financial difficulties spread to the UK. Its economy suffering, the government implemented a quantitative easing program to increase the supply of money and stimulate the economy. This prompted a drop in value for the pound against the US dollar and most other major currencies, with the US dollar experiencing a sharp spike $1.36 per pound by January 2009.
However, some of those gains were lost due to the economy’s slow recovery from the global economic downturn, with the pound in a range from $1.69 to $1.47 from 2009 to 2013.
US dollar strengthens against a weak pound
Despite the reasonably steady performance of the pound, analysts are concerned by the effect of rising debt in the UK on the economy. When Moody’s downgraded the UK’s debt rating in 2013, it was the first time ever the UK had suffered a downgrade.
Not long after, the US economy began to enjoy a sustained period of recovery and then growth. With improving employment figures, higher domestic production of commodities and a rise in levels of consumer confidence, the dollar rose in value against major currencies around the world, climbing to $1.49 against the pound in the first half of 2015.
Meanwhile, the UK economy is hampered by concerns about debt levels and its links to the Eurozone. As the ongoing Greek debt crisis continues to affect the performance of the euro, the flow-on effects are felt in the UK. The UK also has one of the largest current account deficits of any developed country, while the US economy shows strong signs of continued growth.
Many analysts predict the US dollar will continue to rise in value against the pound and many other major currencies in 2017.
Charlie Barton is a publisher at Finder. He specialises in banking and investments products, including banking apps, current accounts, share-dealing platforms and stocks and shares ISAs. Charlie has a first-class degree from the London School of Economics, and in his spare time enjoys long walks on the beach.
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