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Business Environment Profiles - United Kingdom

Exchange rate - US dollar per pound

Published: 02 June 2025

Key Metrics

Exchange rate - US dollar per pound

Total (2026)

1 $US

Annualized Growth 2021-26

-0.4 %

Definition of Exchange rate - US dollar per pound

This report analyses the exchange rate between the Great British pound (GBP) sterling and the US dollar (USD). Figures are quoted in terms of USD ($) per GBP (£), meaning that a rise in the figure represents a stronger comparative pound. The data is sourced from the Bank of England (BoE) in addition to estimates by IBISWorld, with reference to the conditioning assumptions for the sterling effective exchange rate published by the Office for Budget Responsibility (OBR). The figures represent annual averages for each financial year (i.e., April through March). The spot price of the pound sterling in US dollars is determined by the supply and demand of the two currencies, which is in turn predominantly affected by the relative performance of the two economies and differences is monetary policy (i.e., interest rates) and inflation rates. The GBP/USD currency pair is one of the most frequently traded on global foreign exchange markets and, like all money markets, can be relatively volatile. The US dollar is also seen as a "safe-haven" currency, which can also have a significant bearing on the way it trades against other currencies on the global market.

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Recent Trends – Exchange rate - US dollar per pound

Over the five-year period through 2022-23, the GBP-USD exchange rate is forecast to depreciate at a compound annual rate of 1.8%. In June 2016, the United Kingdom voted to exit the European Union. Following the vote, the sterling depreciated sharply against many major global currencies, including the USD, amid prevalent uncertainty which had become prevalent across currency markets overnight. The GBP-USD exchange rate depreciated by 13.3% in 2016-17 alone, with £1 returning US$1.3072 on average during the year - this was the first time the GBP-USD exchange rate had fallen below US$1.4000 over a given fiscal year on average since 1985-86 (£1 = US$1.3775). The exchange rate between the US dollar and pound sterling subsequently remained low, compared against the long-term average, due to the economic instability and uncertainty which persisted. In 2017-18, however, the USD-per-pound exchange rate railed in consequence of a number of impetuses. For instance, trader uncertainty regarding the US Fed and prospective interest rate rises; a relatively resilient UK economy under then market circumstances; and a positive flow of Brexit-related headlines (e.g., a final agreement between the UK government and European Commission (EC) regarding terms of a transition period through December 2020) strengthened the pound sterling against the US dollar in late-2017 through early-2018. In 2017-18 overall, the GBP-USD exchange rate appreciated by 1.5%, with £1 returning US$1.3271 on average during the year.

The value of the GBP in relation to the USD was, however, susceptible to a degree of volatility in the early stages of 2018-19. While the exchange rate initially showed indicative signs of insurgence, largely spurred by initial indicative positivity emerging from then ongoing EU Withdrawal Bill negotiations in mid-2018 and a weakened US dollar, as former US President Trump's administration threatened to impose additional tariffs on Chinese goods - this announcement depleted US market sentiment as the prospect of a full blow trade war created cause for concern - the GBP-USD exchange rate ultimately depreciated by 1.0% over the 2018-19 financial year. As EU Withdrawal Bill negotiations continued without conclusive terms, reaching somewhat of an impasse at the time and ultimately heightening the prospect of a comprehensive deal between the United Kingdom and EU bloc not being struck, the pound lost ground against the US dollar and other global currencies.

To a certain extent, political turmoil in the United Kingdom moderated in 2019-20, with the December 2019 general election confirming Boris Johnson's premiership and Conservative Party rule, effectively, in all but name, confirming the direction Brexit would take thereafter. Moreover, the United Kingdom eventually left the EU bloc on 31 January 2020 - negotiations in respect to a UK-EU trade deal ensued during a transition period extending through December 2020 and the EU-UK Trade and Cooperation Agreement was ratified on 1 January 2021 - meaning a degree of clarity with regards to Brexit had partially diluted volatility in currency markets and the pound sterling's value appeared to be on a tentative growth trajectory. However, the US dollar had performed relatively well against its peers for the majority of the year, preventing the pound sterling from any exponential growth, and, more recently, currency markets were sent into turmoil by the economic shock caused by the COVID-19 (coronavirus) pandemic.

The relative attractiveness of the US dollar was boosted by, at the time, more prominent concerns regarding the outlook for growth outside the United States and further evidence of the then ongoing resilience of the US economy relative to international counterparts. Moreover, the greenback also benefited from its "safe-haven" status, with the coronavirus pandemic leaving markets seeking out less risk-correlated currencies, like the US dollar. Risk assets like stocks and commodities were sent spiralling however, as well as the currencies that underwrite them, while the Fed cut its main policy rate to near zero in March 2020 in an effort to maintain economic health. Yet, the pound sterling lost ground against key trading currencies at an unprecedented rate during March 2020. On 23 March 2020, the pound tumbled to its lowest level on record when weighted against the currencies of the UK's major trading partners, as the economic shock caused by the coronavirus pandemic continued to blight trader confidence and rip though currency markets. As per the BoE's daily monitor, the sterling's broad effective exchange rate hit a record low of 72.9 index points, before exhibiting marked volatility thereafter. Nevertheless, the reading on 23 March 2020 was a reading weaker than at any time during the Brexit process, the financial crisis era, and even the UK's ejection from the European Exchange Rate Mechanism in 1992.

Relative to the US dollar explicitly, the BoE's daily spot exchange rate monitor on 23 March 2020 recorded a 52-week low euro-pound exchange rate of £1 equal to US$1.1492 - this compared to an at-the-time 52-week high of £1 = US$1.3497. The pound sterling was made extra vulnerable by the UK's departure from the EU bloc, while a new burst of emergency stimulus and the government's relief package built atop Budget 2020 commitments, also turned investors more negative on the pound sterling's prospects, exerting a drag on the GBP-USD exchange rate. In 2019-20, the annual average pound sterling exchange rate against the US dollar depreciated by circa 3.2%, whereby £1 returned US$1.2713 on average during the fiscal year.

Undoubtably, the coronavirus pandemic sent trembles across the global economy and money markets. With the outbreak effectively accelerating in the United Kingdom in February 2020 and thereafter, the pound suffered instantaneous and heavy losses amid turmoil for risk assets like stocks and commodities, as well as the currencies that underwrite them - initially, many investors had a greater propensity to choose the safety of the US dollar amid both UK and global unrest, and amid concerns the full extent of pressure on the quid's value may not have yet come to fruition if currency prices continued to be skewed. However, some central bankers were of the view that impulsive and reactive price action in some currency markets represented an overreaction to the coronavirus on the part of investors, perceiving that stabilisation in the pound sterling was due heading into H2 (October-March) 2020-21.

In 2020-21 overall, and the result of an evident rally in H2 2020-21, the GBP-USD exchange rate appreciated by 2.9%, with £1 equalling US$1.3083 on average during the year. The departing Trump administration's apparent preference of a weakened dollar and erratic foreign policy pronouncements (e.g., the US government's stance on North Korea and trade tariff imposition on Chinese goods) dented investor confidence, in turn keeping pressure on the value of the dollar in relation to key trading currencies. Meanwhile, currency traders suggested late-2020 and early-2021 saw a "sterling reflation trade" take hold - colloquially, this is where stocks, commodities and other high-return assets outperform as investors prepare for a return of higher economic activity levels and inflation - driven by: a combination of fading Brexit anxieties; reduced expectations for negative interest rates at the BoE; and expectations for a vaccine-lead UK economic recovery. During 2021-22, global investor sentiment was constructive and investors continued to buy into UK assets such as stocks and gilts, hence, the appreciating GBP-USD continued through 2021-22, whereby the GBP-USD exchange rate appreciated by 4.5%, with £1 returning US$1.3667 on average during the year.

The pound deprecated against the US dollar towards the tail-end of the year, due to the Russian invasion of Ukraine. On the day of the invasion, 24 February 2022, the US dollar was considered a safe haven against the pound and it subsequently appreciated significantly on the day and has remained strong.

Over the current year, the pound is expected to depreciate against the US dollar, with the GBP-USD exchange rate forecast to depreciate by 11.1%, with £1 returning $1.2148. This is because of the significant macroeconomic headwinds the UK economy will face with over the current year. These include rising inflation partially caused by the Ukraine-Russia fuelled energy and supply chain crisis which is set to exceed wage growth. Furthermore, in response to rising inflation, the BoE have raised the official bank rate to 0.75%, 1% and 1.25% respectively in March 2022, May 2022 and June 2022. In turn consumer and business confidence is expected to be subdued over the current year, while the BoE have stated that CPI inflation could reach 10% in 2022 with the UK economy likely to enter a recession at the end of the year. All of these headwinds are likely to compound and yield uncertainty among investors surrounding the state of the UK economy. As a result, many investors are likely to turn towards a stronger and more certain safe-haven currency such as the US dollar. Additionally, in September 2022, Chancellor of the Exchequer, Kwasi Kwarteng, announced the UK government's mini-budget outlining plans for an array of tax cuts in order to try and reinvigorate the UK's stalling economy and attempt to counter the increasing inflation. However, this would have been funded by the borrowing on billions of pounds. Hence, the market reacted negatively towards this and the pound depreciated against the dollar. In response to the misguided government initiatives, the Chancellor and Prime Minister have since been replaced, with the pound appreciating slightly against the dollar. At the time of publication, the BoE daily spot exchange rate was £1 equal to US$1.2016 on 29 November 2022.

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5-Year Outlook – Exchange rate - US dollar per pound

If, in the medium-to-long term and emphasis on the "if", the macroeconomic headwinds and coronavi...

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