A GBP Savings Plan is a far safer investment than other plans because of the strength inherent in the pound. And to understand why a GBP Savings Plan is a good bet, one must understand the history of the GBP.
History of the Pound
Prior to WWII, the GBP was always the main medium for foreign exchanges. This gave it a premium over other currencies, which included the USD. However, after WWII, this began to change as the USD started gaining strength due to the rapid recovery of the US economy after the war. This constant increase in the USD’s value eventually led to it being the preferred medium for international commerce.
Fast forward to the present day, the USD is now the preferred currency in over 60% of global foreign exchanges. Despite this, the GBP has remained stronger than the USD over the past few decades. Achieving an exchange rate of over USD$2 per GBP during the time of the financial crisis of 2008/2009. However, during the financial crisis, the GBP began to slide down as investors panicked over the financial crisis that led to the USD, which saw the GBP’s value plummet. But this was not unique as other major currencies around the world experienced weakness against the USD as well. The weakness in the GBP was more a symptom of investors’ panic buying than any inherent weakness in the GBP itself.
Following the fracas, the GBP/USD continued to fluctuate between 1.40 to 1.70, but when Brexit rolled around in June of 2016, the GBP was knocked down lower. This was due to the surprising vote by the British public, who chose to leave the European Union.
The lower rate against the USD was compounded by a few factors. The strength of the USD is due to interest rates becoming favourable for the USD and the higher relative interest rates. There was also a lot of positivity in the USD being more resilient in times of crisis. All this contributed to the perceived weakness of the pound.
GBP vs USD
In reality, however, if one compares the value of the GBP versus the USD in the last 20 years, the US dollar has always been weaker than the pound. Currently, the USD sits at 1.1000 against one pound. The pound has maintained a stronger value over the US dollar for nearly a century mostly because of the UK government’s willingness to step in in times of crisis. If not for the latest Brexit situation, the pound would be in a much stronger position than it currently is.
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