A Detailed Comprehension on the Pound Sterling Exchange Rate

The pound sterling being the currency of the United Kingdom, its Crown dependencies (the Isle of Man and the Channel Islands) and the British Overseas Territories of South Georgia and the South Sandwich Islands, British Antarctic Territory and British Indian Ocean Territory, is currently considered to be the third largest portion of the global currency reserves next to the US Dollar and the Euro. Henceforth, the sterling pound is also the fourth most traded currency in the foreign exchange rate market next to the US Dollar, the Euro and the Japanese Yen.

Proper Name Usage – Pound vs. Sterling

Pound sterling is used when differentiating the currency used within the UK from others with the same name and in a much formal context, especially as well in the foreign exchange rate market. The term pound or British pound is often used in informal contexts, however, it is important to know that it is not the official name of the currency. The common slang term for pound is quid.

In the wholesale financial markets which offer various exchange rates for euro to pound sterling, the term sterling is used as the currency name but not in particular amounts. Example, “payment in sterling accepted here” and not “this costs me five sterling.” This also goes with the abbreviations: “ster” or “stg.”.

Subdivisions: Decimalization and Pre-decimalization

The pound used to be divided into 20 shillings and each shilling into 12 pence (i.e. 240 pence is equal to a pound). After the decimalization in 1971, it is subdivided into 100pence until the uncovering of the new pence in 1981.

History of the Worlds Oldest Currency

The inception of the sterling pound began during the reign of King Offa of Mercia during the Anglo-Saxon period. From its onset, it had survived the early formation of Scotland and England to form the Great Britain, the chronic shortage of silver coins due to gold unofficial standardization, bank notes and/or paper money during the Napoleonic and Revolutionary Wars, the gold’s official standardization, the World War I and the great depression, the World War II, and the institution of the Euro.

It has survived the test of time and after the adoption of the Euro by a number of European countries. The British pound sterling is undeniably the oldest currency still in use which is still even in the foreign exchange rate market. The pound sterling is one of the most stable currencies in terms of foreign exchange rate.

Pound Sterling Current Exchange Rate in the Market

The Euro to Pound sterling Exchange rates may not be fixed to one another but pound sterling – euro exchange rates mostly move together weakening only in the middle of 2006. In the late 2006 and during 2007, UK’s inflation skyrocketed leaving the Bank of England no choice but to hike its interest rates in return alleviating the pound sterling foreign exchange rate in the market. As such, the pound sterling foreign exchange rate rose to comparative heights against the Euro.

On April 8, 2007, the pound sterling foreign exchange rate hit its 15-year high against the US Dollar. Currently, the pound sterling foreign exchange rate continuously strengthened against the dollar and had hit a 26-year high of S2.11610 on November 7, 2007. However, with the stabilization in other European countries using the Euro, the pound sterling foreign exchange rate began to weaken against the Euro falling below the €1.25 margin in April 2008.

Detailed six-month forecasts of the American Dollar to UK pound sterling currency exchange rate (with U.S. Dollars per one British Pound Average per Month) are as follows:

This diminishing factor might be due to the speculation on the effect of oil price deflation later this year in the US Market.

As for the British pound sterling to Euro exchange rate, the pound sterling exchange rate had fallen from a 1.50 high in September 2007 to 1.25 low in March 2008. This may have been due to ECB President Trichet stating that the monetary authorities of European countries using the Euro currency have no intention whatsoever to lower their rates. This is amidst the elevated inflation crisis in the region’s economy. Hence, they will concentrate on price control pressures rather than in augmenting economic demand.

Currently, the Bank of England steadied its rates at 5% (lowest in terms of interest rates since December of 2006) leaving the pound sterling foreign exchange rate to hold above the 1.95 level. This suggests that economic growth in the UK is being held back due to waning consumer and business expenditures as well as a waning foreign demand amidst a global slowdown.

However, there is a growing speculation that the Monetary Policy Committee will vote in favor of a 25bp cut amidst the deterioration in the UK economic data. Nevertheless, the BOE always had the tendency to take sluggish approach when changing monetary policy, i.e., given the upside inflation risks imminent from booming commodity prices. Thus, it is the least surprising if the interest rates remain unchanged and it follows that the pound sterling exchange rate will remain stabilized for the time being.

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