GBP/USD has a long history, with the pair first trading after the US dollar (USD) was introduced in 1792. In the mid-19th century, when it was first referred to as ‘cable’, GBP/USD was the most traded forex pair in the world. It still ranks among the highest today.
Before World War 1 (WW1), the pound (GBP) was the world’s primary reserve currency, but it lost its footing during the war. The UK was heavily indebted to the United States post-WW1, and GBP was devalued by more than 30%. This was when the US dollar took its place as the primary reserve currency.
In 1940, a fixed exchange rate was implemented under the Bretton Woods system, when the pound was trading at $4.03. Every other major currency also became linked to the dollar, while dollar was linked to the gold price. By WW2 (1949), the pound was devalued once again to $2.80.
The Bretton Woods system collapsed in 1971 and GBP became a free-floating currency, but it continued to depreciate against USD, reaching a new low of $1.48 in 1983. More bad news followed in 1992 (Black Wednesday) when the pound dropped by 25%.
The pound suffered yet another setback in 2008 during the global financial crisis. GBP fell to its lowest price against the USD since 2003. It recovered most of its value by 2016 when, following the Brexit referendum, GBP/USD volatility increased to reflect the abrupt market uncertainty. You can find out more about the value of the pound since the Brexit referendum here.
As of 2019, the pound is the fourth-largest reserve currency, with the euro (EUR) in second place and the Japanese yen (JPY) in third.
