The GBP or the British Pound Sterling is one of the strongest currencies for exchange in the Forex trading market. For over 20 years, GBP has remained stronger than the USD. USD is one of the strongest and most traded currencies in the FOREX trading market. Yet, the strength of GBP is much more than the USD. Now the question arises why GBP is so expensive? To answer this question, we need to consider a lot of points. Let us see them in details:
You may want to know what is inflation. If you are a financially oriented person, then the meaning of inflation should be very clear to you. Inflation best explains the strength of GBP over most of the currencies of the world, including the USD. Inflation refers to the increase in prices and a decline in the value of the purchase of the money. The inflation rate of a currency depends on the country’s economic conditions. The major exports of Britain involve metals, minerals, cars, pharmaceuticals, and many more. These goods will always be in demand in the market, and the export will keep on being on the increasing side. In turn, the pounds will keep on increasing their value. The inflation rate in Britain is lower as compared to many other countries in the world. So, the purchasing power is higher, making it one of the strongest currencies.
Speculations involved in the valuation of a currency affect the market greatly and sometimes on an unbelievable note. The speculations done by high financial experts have a great impact on the investors. Suppose the experts say that the British pound is on a higher valuation. In that case, there will be an increasing tendency among the largest investors to invest in British pounds, which ultimately drives to make this currency stronger. The investors have already believed in the speculations that the GBP is on a rising scale, and the huge number of investments ultimately cause its volatility, and ultimately it remains in the cycle of being the strongest.
Balance of Payment and Sentiments
Balance of Payment or BoP is the valuation of the flow of money in and out of the country. These are in terms of the imports and exports of the country. A country develops a deficit in its account when the valuation of the imports is more than the valuation of the exports. Most countries have a deficit, but the British account has a much lower deficit than the United States. Having the narrowest deficit contributes to the valuation of the GBP. Though not directly linked, this has a great impact on the strength of the currency. The sentiments involved in the entire process are much beyond the speculations. A larger group of people and individuals apart from experts have a strong belief that the GBP is the strongest currency. The belief is so strong and so vivid that it has come to a point to make the world believe that it is the case. The majority opinion has the most important impact on the strength of any currency, and that is why the position of GBP has grown internationally.
Thus, after understanding all the points, we find that the strength of GBP is believed and accepted to be the best, and this has contributed to the growth of GBP as the strongest currency surpassing the USD. It is one of the most accepted facts, and the strength of GBP over USD varied but has never lowered than USD. After all the considerations, we conclude that these are the reasons why GBP will be the strongest currency in the world.