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The Pound Sterling, abbreviated as GBP for “Great British Pound”, is the official currency of the United Kingdom. It is the world’s oldest currency that is still in use.

Bank of England

In 1694, the Bank of England (BoE) was established. It is the world’s second-oldest central bank. It was established as a way to fund the military effort during the Nine Years’ War and was initially created as a private entity that functioned as a banker to the government.

In 1844, the passage of the Bank Charter Act gave the BoE a monopoly on issuing the pound and limited the power of other British banks. In 1914, the conversion of the pound into gold was suspended in order to support the UK’s military efforts during the First World War. The pound officially came off the gold standard in 1931.

In 1946, the BoE was officially nationalized. In 1979, exchange rate controls on the pound were lifted, and it was allowed for the first time to float as a fiat currency on the market.

What moves GBP?

1. BOE monetary policy

The BoE’s mandate is to maintain monetary and financial stability. To achieve these objectives, it aims for an inflation target of 2 percent. The central bank can use conventional policy instruments such as interest rate hikes and cuts, open market operations and other monetary levers to achieve this objective. The BoE can also use non-standard policies such as quantitative easing (QE) and asset purchase programs that emerged after the subprime mortgage crisis in 2008.

The central bank also releases minutes from meetings of the policy-setting MPC committee, publishes a quarterly Inflation Report and holds press conferences. These allow markets to approximate the direction of interest rates based on “hawkish” or “dovish” rhetoric from BoE officials. Additionally, indicators of economic activity such as GDP and CPI reports, along with PMI surveys, have a noteworthy effect on the pound by way of shaping BoE policy expectations.

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