British Pound / US Dollar (GBP/USD)

British Pound / US Dollar (GBP/USD) Profile

The British pound and the U.S dollar currency pair still remain one of the most widely-traded currency pairs in the world. Traders use the vernacular term 'trading the cable' to refer to an exchange between this popular currency pair. The word 'cable' may also refer to the exchange rate between the pound and the dollar or simply refer to the British pound.

For most of the 1800s, right up until the First World War, £1 was valued at a small fraction under $5. The Britain pound was the biggest currency globally, with over 60% of global debt being held in sterling, pre-WW1. The US dollar caught up in the early 1920s, and by 1944, with the conception of the Bretton-Woods monetary system, the pound to dollar exchange rate was pegged at £1:$4.03. In 1971, the Britain pound became a free-floating currency as the Bretton-Woods system failed. Simultaneously the US dollar became free-floating, and the US decided to drop the gold standard.

As a general rule of thumb, since the pound was allowed to free-float against the dollar, the nominal value of the Britain pound depreciated over time, allowing people to believe that the pound was slowly weakening. Research by Dr Mike Staunton Prof. Paul Marsh and Prof. Elroy Dimson, of the London Business School, suggests that, since World War 2, the GBP/USD pairing has remained effectively level in real terms.