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Monday, 01 September 2014
Status GBP
Status GBP

Pound Exchange Rates: Latest Themes

  •  February 2012: According to a note by UBS, quantitative easing by the BoE will likely have a minimal impact on pound exchange rates, which have been fairly immune to easier policy over the past few months.

    "This is due to a breakdown in correlation between the Gilt and FX markets, a stabilisation of UK data, a scaling back of estimates for the QE programme, the pound's close proximity to fair value, and positioning. Slowing flows from the Eurozone into the UK could, however, cause sterling to grind lower as it loses a source of support," says a note ahead of the month's meeting of the Bank of England MPC.
  • January 2012: Pound Exchange Rates continue to find support from UK gilts which are a favourite on the international debt markets. This contrasts to the problems faced by Eurozone countries with many, even Germany, struggling on debt issuance. Also boost the pound are a good set of PMI data readings. Construction, Manufacturing and Services have all beaten market expectations.
  • December 2011: Pound Exchange Rates enjoyed a relatively lacklustre days trade on global exchange rate markets. The themes driving the pound exchange rate remain (see below.) However, Bank of New York Mellon had something to say about the GBP in their morning FX market update.

Neil Mellor at BNY writes that the British pound could win the title of 'ugliest currency of the year' and says: "the ‘line-up’ of ugly currencies is in a state of flux and such is the ‘talent’ on offer that there can be no question of any one currency running away from the competition. But as things stand, GBP is looking more and more like it could make a serious challenge for the title in 2012."

Essentially Mellor argues that the UK economy is dead in the water. Quantitative easing has not produced the desired results - in fact QE is so ineffective international bond buyers now consider UK gilts to be some of the safest financial investments around; despite the manipulation of the Bank of England. QE is not devaluing gilts, and it is certainly not boosting the economy. At some stage something will have to give. 

"What would await the UK economy should the BOE lose grip on the Gilt market is an uncomfortable question for another day," asks Mellor.

  • November 2011: Pound exchange rates continue to be driven by the prevailing attitude to risk taken by investors on global markets.

The pound has steadily, over the course of the past 6 months, garnered a status as being a 'safe' asset - what we mean by this is that investors will seek to buy British pound sterling when trouble arises in the global economy.

The main culprit during this time is the Eurozone debt crisis and the sceptre of collapse of the European Monetary Union.

The pound's status as a safe haven was reinforced on the 24th of November when, for the first time in 2 and a half years UK gilts were seen as safer than German bunds as the debt crisis appeared to be heading to Germany.

The dynamic between the British pound and the US dollar is however a little different - the US dollar is still regarded as the ultimate safe haven courtesy of its sheer size and global reach - the US dollar is the most liquid of all currencies.

The key for those with an interest in pound exchange rates is to keep an eye on the Eurozone crisis, as well as keeping an eye on the current currency market dynamics in which the pound enjoys safe haven status. This could, of course, change.

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