Will the US Dollar overtake the British Pound for the first time in 52 years?

FXOpen

The removal of the Gold Standard by the US Federal Reserve Bank in the early 1970s was the precursor to major currencies in Western nations being able to be printed at will or become subject to potential collapses in value as they morphed from being backed by a solid commodity to not being backed by anything at all.

At face value, the removal of the Gold Standard, which was a protocol in the United States in which the US Dollar was backed by physical gold, was a move which handed greater power to central banks and allowed increased circulation of notes to influence value on the currency markets.

That historic move by the Federal Reserve came at approximately the same time at which the US Dollar ceased to be the world's most valuable currency in terms of market price, as the British Pound overtook it in 1972 and has been the highest valued global currency ever since.

Of course, the US Dollar has maintained its position as a reference point globally, as its stature as the world's most recognized reserve currency puts it at a higher status than the British Pound, however the lower value of the US Dollar against the pound is something which appears to be coming to an end.

At the close of the Asian trading session today, the British Pound was only worth 1.03 US Dollars, which is its lowest point on record ever since the end of World War 2.

Although one British pound was worth a little more than a U.S. dollar over recent years, it used to be worth a lot more. Britain had a global empire in 1900, and the British pound was worth almost five times as much as the US Dollar.

That it has been slowly declining in value represented a natural change in the way the Western markets operate, but this year has been catastrophic for the British Pound.

As new Chancellor of the Exchequer (finance minister) Kwasi Kwarteng promised more tax cuts on top of a £45 billion package he announced on Friday last week, the Pound collapsed even further due to expectations that borrowing will surge.

Last week, the Bank of England raised interest rates by half a percentage point to 2.25% to try to calm inflation which is at a 40-year high of 9.9%. The rate increase was the seventh in a row and took rates to the highest for 14 years however insiders are expecting this rate to be as high as 5% by January 2023.

UK government borrowing is at its highest point since 2008, and the markets are showing little confidence in the British economy's performance in the immediate future.

We may well see parity between the US Dollar and British Pound, however if the Dollar goes higher than the Pound, that will be history in the making.

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This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.

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