Strength of the Pound Sterling: Economy and Investment

The International Monetary Fund describe the UK’s currency exchange as free-floating. Under such a system the value of a given currency is the result of a set of complex relationships between economic conditions and market forces. Consequently, the value of the pound has always fluctuated against other currencies in response to these forces. Following the result of the UK’s referendum on its membership of the EU, the value of the pound against both the US dollar and the euro fell markedly. The exchange rate of the pound against the US dollar and the euro has continued to fluctuate. A weakened pound has several implications for various aspects of the UK economy, notably imports and exports and the price of goods and services.

Daily Spot Exchange Rate between Pound Sterling and the US Dollar and the Euro, 4 November 2015 to 4 November 2016

(Source: Bank of England, ‘Spot Exchange Rates; XUDLERS and XUDLUSS’, accessed 4 November 2016)

This briefing presents information from the International Monetary Fund on different ways in which currency exchange systems can be classified. It then provides recent data on the value of the pound and commentary and analysis on the implications this has for aspects of the UK economy.