Why does the exchange rate of 1 British Pound always stay above 1 US Dollar? This dissonance is as perplexing as seeing Meme coins with 8 decimal places. The US economy is larger, and the dollar is the lifeblood of global finance, but currency unit prices are not a scoreboard of national strength—viewed through a crypto lens, everything becomes clear. This article is based on an analysis by Liam ‘Akiba’ Wright / CryptoSlate, edited and refined by Dongqu.
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Table of Contents

• Currency pairs are the core focus
• Currency units are arbitrary; history does not reset the “counter”
• So, what actually drives GBP/USD exchange rate fluctuations?
• 1. Interest rate expectations
• 2. Inflation expectations and central bank credibility
• 3. Economic growth, risk appetite, and flight-to-safety instincts
• 4. Trade and capital flows
• People’s notion of “purchasing power” is not the same as the spot forex rate
• When can 1 USD “exceed” 1 GBP?
• Scenario 1: UK cuts rates faster, more aggressively, and for longer
• Scenario 2: UK risk premium rises again
• Scenario 3: Global risk aversion intensifies, USD liquidity dominates the market
• Key insights for crypto readers

If you’ve ever flown to London and opened your mobile banking app, only to find the displayed exchange rate hard to believe—don’t worry, you’re not alone.

The fact that the GBP exchange rate is again above 1 USD feels as strange as seeing a Meme coin with 8 decimal places. The US economy is much larger, and the dollar is the “lifeline” of the global financial system—almost half of global commodities are priced in USD—yet why does 1 unit of GBP still seem “more valuable” than 1 USD?

First, it’s crucial to clarify a core point that crypto practitioners are repeatedly reminded of—unit prices.

In crypto, the importance of currency units stems from their linkage to supply, which relates to market cap, a rough indicator of “asset scale.” A token priced at 1 USD with a supply of 1 trillion feels very different from one with a supply of only 100 million, even if both are “1 USD”—because the total underlying assets are vastly different.

But fiat currency logic isn’t like that. You might still use a similar intuition, but you need to focus on the right core—currency pairs.

Currency pairs are the real focus

GBP/USD is the purest form of a trading pair, and the “1” in GBP is essentially a design choice—similar to how crypto exchanges choose whether to quote in “satoshis” or “BTC.”

As of mid-January 2026, 1 GBP is roughly exchangeable for 1.34 USD (with slight fluctuations). Over the past six months, the rate has remained stable around this range, averaging about 1.34, never approaching the “1:1” parity line—this data can be checked via GBP/USD tracking tools.

This number simply represents “the price of one currency in terms of another”—it’s not a scoreboard of national strength, nor a certificate of purchasing power.

Rather than reflecting “the relative strength of the UK and US,” it’s closer to the logic of crypto trading pairs like ETH/BTC.

So, why does the unit price of GBP always seem “higher”?

Currency units are arbitrary; history does not reset the “counter”

People tend to treat 1 GBP and 1 USD as directly comparable units within the same monetary system, but that’s not accurate. GBP is a more ancient currency unit, shaped by long historical evolution, and its scale is essentially inherited. No country regularly recalibrates its currency units to align globally.

Of course, countries can “redenominate” their currencies—by adjusting decimal places, issuing new banknotes, or introducing “new currencies”—which creates a new numerical figure for the public. But this doesn’t mean the economy suddenly becomes richer.

This explains why “1 Yen’s value is very low” doesn’t imply Japan’s economic weakness—it simply indicates that the Yen’s currency unit is set smaller.

Therefore, the question “Why should the USD now be worth more than the GBP?” presupposes a premise: “A larger economy must have a higher unit value currency.” But in reality, there is no such “endpoint”—only floating exchange rates.

Using crypto logic as an analogy: suppose two blockchains define their “base units” differently—one calls the smallest unit “1,” while the other defines 1000 of the smallest units as “1.” If you only look at the unit prices on the screen, you might mistakenly think the latter has “more value,” but in fact, the difference is just in decimal placement.

The core of “Dollar Hegemony” lies in its role as a global financial “infrastructure,” not in achieving a numerical goal like “1 USD exceeds 1 GBP.”

When people say “the dollar is strong,” they are really pointing to its central role in the global system: foreign exchange reserves, settlement, trade pricing, collateral, debt instruments, trade finance—these seemingly dull functions are the backbone of global market operations.

The IMF’s COFER data (official foreign exchange reserve composition) vividly reflects this dominance—tracking central banks’ reserve holdings, USD always holds the largest share.

This hegemony is rooted in “use cases” and “network effects”: even if the spot rate shows GBP > USD, the hegemony remains—because the exchange rate only reflects the relative prices of two currencies.

Global influence does not force currency units into specific integer relationships.

So, what actually drives GBP/USD exchange rate fluctuations?

This is where crypto’s intuitive approach can be useful—crypto practitioners have long accepted that “price is a product of capital flows,” with the key difference being: macro capital flows drive fiat currency exchange rates.

The fluctuations of GBP and USD are driven by very routine, very “human behavior” factors: capital chasing yields, risk-averse capital, and funds used for daily payments.

A narrative way to understand this is to see GBP and USD as “two large barrels filled with promises,” and the forex market’s role is to judge the relative value of these “promise barrels” at any given moment.

Specifically, the main drivers include four categories:

1. Interest rate expectations

Currencies behave like “interest-bearing assets,” because holding a currency often means holding short-term interest rate instruments of that country, or at least being influenced by their trends.

Currently, the interest rate outlooks for the UK and US do not show a clear tilt in one direction.

The Bank of England, at its monetary policy meeting ending December 17, 2025, lowered the benchmark rate to 3.75%—this info can be checked in the BoE’s official rate summary.

The Fed, at its December 10, 2025 FOMC statement, set the target range for the federal funds rate at 3.50%-3.75%.

When short-term rates are roughly in the same range, it’s hard to form a clear logic that “interest rate differentials alone can push GBP/USD below 1:1.”

2. Inflation expectations and central bank credibility

Long-term, inflation erodes currency value, and exchange rates reflect investors’ judgments: who can better protect purchasing power? Who is more likely to “compromise” under inflationary pressure (e.g., cut rates prematurely)?

In December 2025, UK inflation rose to 3.4%, prompting market discussions on “whether this will slow down the Bank of England’s future rate cuts.” This info can be found in inflation-focused reports or the UK’s ONS inflation data center.

Monthly data alone can’t determine currency trends, but markets continuously adjust expectations based on new info, with inflation being a key variable.

3. Economic growth, risk appetite, and flight-to-safety instincts

When global markets panic, USD often becomes a “safe-haven asset” that is heavily bought. This isn’t praise for US politics or stability, but an instinctual response within the global financing system.

If you’ve observed scenarios where “USD liquidity tightens and Bitcoin prices fall,” you understand this logic—people rush to hold assets that can quickly settle bills and collateral.

This flight-to-safety can strengthen the USD, without relying on “USD exceeding GBP”—because the size of the currency units isn’t the core issue.

4. Trade and capital flows

The “external balance” structures of the UK and US differ, and the types of investors attracted by their assets vary. These capital flows directly influence exchange rates. Meanwhile, USD’s global role means the US must supply USD via trade deficits and capital markets, creating a complex interaction between “supply” and “demand” for USD.

Frankly, this part is quite complex—and your intuition is correct: markets are inherently complex.

People’s notion of “purchasing power” is not the same as the spot forex rate

If you ask, “Okay, but what can I actually buy with these currencies?”—you’re asking about another concept: Purchasing Power Parity (PPP). This concept suggests comparing the “local prices of the same basket of goods” to assess the real value of different currencies.

OECD’s definition of PPP is clear and practical: it’s the “exchange rate that eliminates differences in price levels across countries, equalizing purchasing power,” which is the core logic behind PPP datasets.

PPP explains why “even if the exchange rate shows a ‘strong’ currency, tourists may still feel poor in some countries and rich in others”: the spot rate is the “market transaction price,” while PPP is a tool to “convert currencies into everyday purchasing power.”

For a more intuitive understanding, consider the “Big Mac Index”—notably, this index isn’t accidental; it’s a simplified measure of PPP that helps ordinary people grasp the core idea.

Using crypto logic as an analogy:

· Spot forex rate = “trading price” of crypto

· PPP = “real value after deducting local costs,” similar to how investors use “real yield” rather than “nominal yield” to measure asset value.

Both are not “absolute truths,” but answer different questions.

When can 1 USD “exceed” 1 GBP?

This is a forward-looking perspective, where crypto’s mindset truly shines.

Crypto practitioners are used to “probability analysis based on scenarios”—because every crypto price chart is a story about technology adoption, liquidity, regulation, market narrative, and risk. The same logic applies to fiat exchange rate analysis.

A GBP/USD rate falling to 1:1 or below (parity) essentially signals a “fundamental shift in market mechanisms or trends.” Such a scenario isn’t impossible—other currency pairs have experienced similar trajectories in history, driven by “a set of sustained forces pushing in the same direction for long enough.”

Here are three core scenarios that are easy to understand:

Scenario 1: UK cuts rates faster, more aggressively, and for longer

If the UK’s economy remains sluggish and inflation recedes, the Bank of England might adopt a “radical rate cut” policy. Markets will adjust expectations accordingly, and “lower expected yields” will drag down the GBP.

But this scenario has constraints: the UK’s inflation problem isn’t fully resolved (CPI rose to 3.4% in December 2025), making the narrative of “rapid short-term rate cuts” less likely in the near term (relevant CPI data and rate expectations are available in current inflation reports).

To push GBP/USD below 1:1 via this route, it would require “UK interest rates staying significantly below US rates for an extended period,” combined with “economic growth gaps leading investors to favor USD assets.”

Scenario 2: UK risk premium rises again

Sometimes, currency fluctuations aren’t due to “mild differences,” but because investors suddenly demand higher risk premiums to hold a country’s assets.

If the UK faces a “fiscal credibility crisis” (e.g., doubts about debt sustainability), political turmoil, external financing shocks, or a “sovereign bond volatility” scenario, GBP could rapidly reprice.

This is similar to a “liquidity crisis” in crypto—what crypto traders call a “waterfall decline.”

If such risk premiums stay high, GBP/USD reaching parity becomes much more likely—because “persistent risk premiums” are a force capable of changing long-term exchange rates.

Scenario 3: Global risk aversion intensifies, USD liquidity dominates

If the global market enters a “long-term risk-off mode,” and USD financing needs rise, the USD could be “continually bought,” with the duration exceeding most expectations.

Crypto traders are familiar with this scenario: asset prices tend to move in unison, leverage is forced to unwind, and “assets used for debt obligations” become the market’s core.

In such an environment, even if the UK “does nothing wrong,” the GBP could weaken—and “GBP to USD at parity” might just be a side effect of rising global USD demand.

All these scenarios do not require “the US to become stronger”—they only need “the market to be willing to pay a higher relative price for USD than for GBP.”

Remember: “Strength” relates to politics, institutions, and scale; “price” relates to capital flows and market expectations.

Key insights for crypto readers

If you only remember one thing, remember:

“The valuation of GBP in units ‘exceeds’ USD,” which is an illusion caused by currency unit settings; the market price of the currency pair is the real core to watch.

A more convincing way to understand is to see GBP and USD as “two blockchains”—they compete in “credibility, policy, incentives, and trust,” and the exchange rate is the “real-time chart” of this competition.

When people debate whether “USD units should surpass GBP,” they are essentially trying to make the world “more orderly,” just like the ranking of crypto market caps. But currencies do not owe us this “order.”

They are “historical products wrapped around modern macroeconomics,” and exchange rate charts are where history and reality intersect.

If you want to understand “why 1 GBP’s purchasing power still exceeds 1 USD,” stop obsessing over currency unit values, and focus instead on the forces that determine exchange rates: interest rates, inflation, risk, and the silent question markets ask every day—“where should I put my capital in the future?”