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CURRENCY ANALYSIS

GBP

Is the world’s oldest currency showing its age or is there life in the old pound yet?

GBP, British Pound, World’s Oldest Currency, Showing, Its Age, Is There Life, Old Pound, Yet, currency analysis, fx trader, forex

The Great British Pound also known as the sterling has the deserved title of being the world’s oldest currency which is still in use with its origins dating back to the reign of King Offa of Mercia in 760 AD. The Sterling is also in the unique position of being the world’s third biggest reserve currency and the fourth most traded currency with 12.8% daily share in 2016 according to the Bank of International Settlements.

And let’s face it, in 2016 it really was the Kim Kardashian of the currency world as it was constantly in the media following the shock Brexit referendum result in June.  The dramatic fall for the sterling against the USD to levels not seen since 1985 had many market commentator speculating that parity was only sessions away.  Thinking back, it was only a couple of years ago when there was market chatter about which central bank, the FED or the BOE, would raise interest rates first.  But after the drama of 23rd June we have seen BOE reduce interest rates and the US raise interest rates twice; what a difference a vote makes.  Parity of course has not happened and though the sterling is still trading lower against both the greenback and the EURO since the vote, it has recovered slightly.

Now as we wait for the official divorce proceedings to start between the UK and the EU there is much speculation on what the future holds for the GBP. But before we get into that, I thought we would have a quick look at the recent lows and highs of this famous currency.

Lows - February 1985

Let’s start with looking back at what happened in 1985 and why the pound was trading as low as $1.05 against the USD.  Now at the time, it wasn’t a case that we had a weak GBP, in fact it was a case that we had a very strong dollar.  UK economic growth in 1985 was at 4.2%, a strong number. However, in Ronald Reagan’s first term in office, he had introduced massive tax cuts and increased public spending to boost the US economy, which it did and that resulted in the Federal Reserve raising interest rates which then saw a surge in foreign investors putting their money into the US which sent the USD skyrocketing.  This had a huge impact on the US exporting industry which was under so much strain because of the higher USD that finance ministers from the US, the UK, Japan, West Germany and France got together and agreed to devalue the US dollar.  It worked and within two years the dollar had fallen by 40%. The sterling till recently, never looked back.

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