GBP to USD: Exchange rate and its influence on foreign trade

Ⅰ. Analysis of the exchange rate trend of GBP against the USD

February 18, 2025, the exchange rate of the British pound against the US dollar was 1.2518 USD, which has been less volatile recently and is generally stable. However, in the past month, the exchange rate has risen by 2.95 percent, showing a certain appreciation trend.

According to market analysis, it is expected that in the next two months, the pound may rise to 1.2823 USD, an increase of about 3.73%. Mainly based on continued improvement in UK economic data. And the possibility of the Federal Reserve leaving interest rates unchanged or cutting them, causing the dollar to weaken. Market expectations of future interest rate rises by the Bank of England will also influence the direction of sterling.

In the short term, the pound has shown a certain appreciation trend against the US dollar, but the long-term trend is still affected by global economic dynamics and monetary policy. Investors need to pay close attention to economic indicators and market sentiment to get a better handle on currency movements.

You can search for real time exchange rate through XTransfer exchange rate platform to monitor the latest rate.

Ⅱ. The main factors affecting the exchange rate of the GBP against the USD

The exchange rate of the pound against the US dollar is affected by a variety of factors including the economy, politics, market sentiment and the global environment, the main factors are as follows:

1. Economic factors

The most direct factors affecting the exchange rate are economic factors.

• Interest rate policy: The difference in interest rates between the central banks of the UK and the US directly affects the exchange rate. If the Federal Reserve raises interest rates faster than the Bank of England, the dollar is likely to strengthen and the pound is likely to depreciate.
• Inflation: Rising inflation will reduce the purchasing power of a currency. This leads to depreciation. That is why companies need to take effective inflation control. 
• GDP growth: Strong economic growth usually attracts foreign capital inflows, pushing up the value of the local currency. If the UK's GDP growth rate is higher than that of the US, sterling might appreciate.
• Trade balance: If the UK runs a trade surplus (where it exports more than it imports), increased demand for the pound could push it up.

2. Political factors

• Brexit impact: There is a constant impact of Brexit on British trade. Trade policy and economic adjustments are still affecting the direction of the pound. Any uncertainty can cause volatility.
• Government policy and elections: The UK government's fiscal policy, election results or major political decisions may affect market confidence in the pound.

3. Market sentiment and speculation

• Investor expectations: Market expectations about future economic and monetary policy affect exchange rates. If investors are positive on Britain's economic prospects, it could increase demand for the pound.
• Risk appetite: Sometimes, the market is highly uncertain. the US dollar is usually favoured as a safe haven asset, which can lead to a fall in the value of the pound.
• Speculative trading: Short-term fund flows in the foreign exchange market can lead to increased short-term volatility in GBP/USD.

Ⅲ The impact of exchange rate fluctuations on UK exports

Fluctuations in the exchange rate between gbp and usd can affect UK trade both positively and negatively.

1. The impact of the depreciation on British exports

A weaker pound is good for UK exports. It can ncrease export competitiveness. The depreciation of the pound makes British goods cheaper and more competitive in the international market. It is likely to boost export volumes.

• Export market expansion: Price advantage helps British companies to expand overseas markets, especially in price-sensitive industries such as manufacturing.
• Boosting economic growth: the growth of related industries driven by increased exports is likely to have a positive impact on the UK economy as a whole.

2. The effect of the pound's increase on exports from the UK

The following are some ways that the strengthening of the pound could hurt UK exports:

• Decreased export competitiveness: UK goods are more costly on the global market due to a higher pound, which could lower their relative competitiveness and decrease exports.
• Lower cost of imports: a stronger pound, although detrimental to exports, could make imports cheaper, thus helping firms that rely on imported raw materials.
• Trade restructuring: a prolonged appreciation of the pound may encourage UK firms to move to higher value-added products to reduce the adverse effects of price competition.

3. Practical examples and data

• UK Merchandise Trade Performance in 2024: UK merchandise exports amounted to £356.4 billion, a fall of £19.2 billion, or 5.1%, from 2023. This suggests that overall exports are still on a downward trend, although sterling fluctuations have had some impact on exports.
• Growth in trade in services: The UK's exports of trade in services increased by 3.4% in 2024, and the surplus widened to 165.1 billion pounds, showing that the UK has stronger international competitiveness in the services sector.

4. Enterprise response strategy

• Market diversification: UK exporters can expand into emerging markets, reducing their reliance on specific markets and reducing their exposure to exchange rate fluctuations.
• Product upgrade: improve the quality and added value of products, enhance the competitiveness of the international market, and reduce the dependence on price factors.

To sum up, a weaker pound is generally good for British exports, boosting international competitiveness, while a stronger pound can weaken export competitiveness but reduce import costs.

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