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

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

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The abolition of the gold standard by the US central bank in the early 1970s was a prerequisite for the fact that the most important currencies of Western countries could be printed at will or their value could collapse when there was no fixed commodity behind them. not to support anything at all.

In nominal terms, the removal of the gold standard, which was the protocol in the United States where the US dollar was backed by physical gold, was a move that gave more power to central banks and allowed the increased movement of notes to affect value. in the foreign exchange market.

This historic move by the Federal Reserve occurred around the same time that the US dollar ceased to be the world’s most valuable currency in terms of market value, when the British pound overtook it in 1972 and has been the most valued global currency ever since. .

Of course, the US dollar has retained its position as the benchmark globally, as its position as the world’s most recognized reserve currency puts it in a higher position than the British pound, but the lower value of the US dollar against the pound is something. which seems to be running out.

At the end of today’s Asian trading session, the British pound was just 1.03 US dollars, the lowest point on record since the end of World War II.

Although one British pound was worth slightly more than the US dollar in recent years, it used to be much more valuable. Britain had a global empire in 1900, and the British pound was worth almost five times the US dollar.

The fact that it has slowly fallen in value was a natural change in how western markets operate, but this year has been catastrophic for the British pound.

When new Finance Minister (Minister of Finance) Kwasi Kwarteng promised more tax cuts on top of the £45 billion package he announced on Friday last week, the pound fell further on expectations that borrowing would pick up.

Last week, the Bank of England raised interest rates by half a percentage point to 2.25 percent in an attempt to curb inflation, which is at a 40-year high of 9.9 percent. The rate hike was the seventh in a row and the highest in 14 years, but insiders expect that rate to be as high as 5% in January 2023.

UK government borrowing is at its highest level since 2008, and markets have little confidence in the UK economy’s near future.

We may well see parity between the US dollar and the British pound, but if the dollar goes higher than the pound, it will be history.

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