Pound currency characteristics
The main characteristics of pound sterling cash can be briefly summarized as follows:
Currency name: British pound (POUND, STERLING)
Issuing agency: Bank of England (BANK OF ENGLAND)
Currency Symbol: GBP
Currency carry: 1 pound = 100 pence (PENCE)
Banknote denominations: 5, 10, 20, 50 pounds
Since the United Kingdom was the first country to industrialize and once dominated the international financial industry, the British pound was once the most widely used currency for pricing and settlement in international settlement services. After the First World War and the Second World War, the British economic status continued to decline. However, due to historical reasons, the British financial industry was still very developed, and the pound sterling still occupies a considerable position in the settlement of foreign exchange transactions.
Factors affecting the pound
Fundamental factors affecting the pound
Bank of England (BoE): The Bank of England. Since 1997, BoE has obtained the function of independently formulating monetary policy. The government uses the inflation target as the standard for price stability, generally measured by the Retail Prices Index excluding mortgages (RPI-X), with annual growth controlled below 2.5%. Therefore, although monetary policy is formulated independently of government agencies, BoE still has to meet the inflation standards set by the Ministry of Finance.
Monetary Policy Committee (MPC): Monetary Policy Committee. This committee is mainly responsible for setting interest rate levels.
The central bank’s main interest rate is the minimum lending rate (basic interest rate). In the first week of each month, the central bank will use interest rate adjustments to send clear monetary policy signals to the market. Changes in interest rates usually have a greater impact on the pound. BoE will also formulate monetary policy through daily adjustments to the interest rate of government bond purchases from discount banks (designated financial institutions that trade money market instruments).
British government bonds are also called Phnom Penh bonds. Similarly, the spread between the 10-year Phnom Penh bond yield and the yield of other country bonds or U.S. Treasury bills over the same period will also affect the exchange rate between the pound sterling and other currencies. 3-month Eurosterling Deposits: 3-month Eurosterling Deposits. Sterling deposits placed in non-UK banks are called Euro pound deposits. The difference between its interest rate and the European deposit interest rate of other countries over the same period is also one factor affecting the exchange rate.
Its function of formulating monetary policy has gradually weakened since 1997. However, the Ministry of Finance still sets inflation targets for BoE and decides on the appointment and removal of key BoE personnel.
The relationship between the British pound and the European Economic and Monetary Union:
The pound is often suppressed due to Prime Minister Tony Blair's remarks about the possibility of joining the single European currency, the euro. If the United Kingdom wants to join the eurozone, the interest rate level in the United Kingdom must be reduced to the euro interest rate level. If the public vote to join the eurozone, the pound must depreciate against the euro to develop domestic industrial trade. Therefore, any remarks about the possibility of Britain joining the Eurozone will suppress the pound exchange rate.
The main economic data in the UK include: initial unemployment, initial unemployment rate, average income, retail price index excluding mortgage loans, retail sales, industrial production, GDP growth, purchasing managers' index, manufacturing, and service industry surveys, money supply (M4), income and housing prices are balanced.
3-month Eurosterling Futures Contract (short sterling):
The futures contract price reflects the market's expectations of the European pound deposit interest rate in three months. Spreads in the price of futures contracts in other countries over the same period can also cause changes in the pound's exchange rate.
The major stock indexes of the UK. Unlike the United States and Japan, the British stock index has a relatively small impact on the currency. But despite this, the Financial Times Index and the US Dow Jones Index have a strong correlation.
Cross Rate Effect:
The cross exchange rate will also have an impact on the pound exchange rate.