It’s the belief of whether the country in question is capable of paying that debt down. While the UK is light years behind America in debt, it’s important to know that the debt is really not the key to currency value. To put it into perspective, America’s government debt is recently calculated to be roughly $22.78 Trillion. The UK’s government debt actually just surpassed the £1 Trillion mark, and this is certainly not good news for anyone. For instance, if foreign investors believe that a country will not be able to pay its debt, the only logical move to do is get rid of holdings in that country. The amount of a government’s debt can have a tremendous impact on the value of a currency. Deficits and Surpluses can’t define the value of a currency, but they sure do count as huge factors. As a comparison, America’s current BoP deficit is roughly at USD$ -130.4 billion. Currently, Britain has had its narrowest deficit since 2012 at about £ -30.1 million. Most countries have a deficit on their account, but this simply means that the value of imported goods is higher than the value of the export goods. The BoP shows the flow of money in and out of a country with regards to its export and import behavior. Simply put, the Balance of Payment (or BoP) is a country’s record of the transaction with the rest of the world. This is probably one of the more important factors in the characteristic of the current pound sterling currency. Until this cycle is broken, investors will continue to affect the strength of the pound in an increasing way. The British pound has been a strong currency for a while now, and investors still believe this currency is worth investing in. When investors put in large sums of money to invest in currency in order to make a larger profit margin, the exchange rate volatility is heavily affected in return.
For example, if economists speculate that the value of the pound is going to increase (or is already in an increasing track), investors are more likely to demand and invest in that particular currency. Speculation merely refers to the conclusions made by experts in the finance industry regarding the value of a specific currency. When we begin to talk about speculation and how much it affects the rate of the British pound, it’s sometimes hard to believe. Investors have a lot of control over what goes on with the global currency exchange. This is one reason why the pound exchange rate is strong and why it almost always is. With Britain’s inflation rate lower than many countries, its purchasing power is therefore higher. The demands for these products are constantly high, and so the pound is always on an incline. Some of the UK’s top exports include various machinery, cars, precious metals and minerals, pharmaceuticals, and more. According to this article, inflation can be defined as the rate of increase in the price of goods and the “decrease in purchasing power of funds.” To understand this fully, we’d have to look at Britain’s exportable goods. But inflation is one of the best explanations why the pound is just about 1.2 the amount of the US dollar. Plenty of folks throw the word “inflation” around without really understanding what it means. Here are a few reasons why the British pound sterling is so expensive these days. For now, suffice it to say that influence is distributed evenly among these factors. The factors listed here can definitely affect change, but at the same time, the decisions of financial institutions such as the Bank of England, the European Central Bank, and the US Federal Reserve all have major effects on currency exchange as well. These are just a few reasons that explain why the pound is so expensive, and there are certainly other factors that affect exchange rates. It’s great for those coming from the UK to travel to other countries but for some of us trying to spend our hard earned money in the UK, we’re short out of luck. It comes as a surprise to some-especially those outside of Britain and those who don’t travel quite often-but it actually makes a lot of sense for the pound to be so expensive. But regardless of what it may be called, the British pound sterling remains to be one of the strongest currencies throughout the world. It’s commonly referred to as the pound, but some people still refer to it as sterling.