If you land in London, open your mobile banking app, and feel a bit puzzled when seeing the exchange rate, that’s completely normal.
The price of 1 pound is still higher than 1 dollar. This contrast is like seeing a meme coin with eight decimal places for the first time. The U.S. economy is larger, and the dollar is the lifeblood of the global financial system, with nearly half of international trade priced in it. So why does one unit of pound still seem 'worth more' than one unit of dollar?
First, let's clarify a core principle that is repeatedly emphasized in the crypto world: unit price. In the realm of digital assets, the unit is important because it is tied to the supply, which in turn determines the market cap — that is the yardstick people use to roughly measure the scale of assets.
A token priced at **1 dollar** with a supply of **1 trillion**, and another token priced at **1 dollar** with a supply of only **100 million**, feels entirely different. But the logic of fiat currency is not like that. The key to understanding lies in focusing on the correct target: the currency pair.
The GBP/USD pair is the purest trading pair. The '1' in front of the pound essentially represents a choice of interface, just like an exchange deciding whether to quote in 'satoshis' or '**$BTC**'.
The reality is that 1 pound is approximately worth **1.34 dollars**. Over the past six months, the exchange rate has remained stable in this range, with an average around **1.34**, never approaching the 1:1 parity line. This number merely represents the price of one currency measured against another; it is not a scoreboard of national strength, but closer to the logic of trading pairs like **$ETH**/**$BTC**.
So, why does the unit price of the pound always seem 'higher'? Because currency units have arbitrariness, and history does not reset the counter.
People subconsciously view 1 pound and 1 dollar as comparable units within the same system, but this is not the case. The pound is an older monetary unit, and its modern form is the result of long-term evolution, with the unit scale being largely inherited.
No country regularly recalibrates its currency unit to achieve global uniformity. This explains why 'the unit value of 1 yen is extremely low' does not represent a weak Japanese economy—it simply indicates that the unit setting of the yen itself is very small.
The question 'Should the dollar now exceed the pound' presupposes a premise: that larger economies will ultimately have currencies with higher unit values. But in reality, there is no such finish line, only floating exchange rate prices.
Using crypto logic as an analogy: suppose two chains define 'base units' differently. One chain directly calls the smallest unit '1', while the other chain defines 1000 of the smallest units as '1'. If you only focus on the unit price on the screen, you might mistakenly think the latter has a 'higher value', but in reality, the difference is only in the position of the decimal point.
The core of 'dollar hegemony' lies in its function as global financial 'infrastructure', rather than achieving a numerical goal of '1 dollar exceeding 1 pound'. When people talk about the strength of the dollar, they are really referring to its central position in the global system: foreign exchange reserves, transaction settlement, and trade pricing.
The official data on the composition of foreign exchange reserves from the International Monetary Fund (IMF) visually reflects this hegemony—the dollar consistently occupies the largest share. The core of this hegemony is 'use cases' and 'network effects'. Even if the spot exchange rate shows that 1 pound is still higher than 1 dollar, this hegemony still holds.
So, what exactly drives the fluctuations of the pound against the dollar? This is where the intuition from the crypto space can come into play—we have long accepted the logic that 'prices are the product of capital flows'. The difference lies in the fact that the exchange rates of fiat currencies are driven by macro-level capital flows.
Exchange rate fluctuations stem from some very conventional, human-related factors: funds chasing returns, funds avoiding risk, and funds used for paying bills. A more narrative explanation is to view the pound and the dollar as 'two huge buckets filled with commitments', with the foreign exchange market judging the current value comparison of these two buckets.
Specifically, there are four main driving factors.
First, interest rate expectations. The performance of a currency is similar to that of 'interest-bearing assets', as holding a currency often means holding the short-term interest rate instruments of that country. Currently, the interest rate narratives in the UK and the US do not present a clear one-sided tilt.
The Bank of England recently lowered the benchmark interest rate to **3.75%** at a monetary policy meeting. The Federal Reserve, after another meeting, lowered the target range for the benchmark interest rate to **3.50%-3.75%**. When the short-term interest rates of both countries are in roughly the same range, it is difficult to form a clear logic that can push the exchange rate below 1:1 solely based on interest rate differences.
Second, inflation expectations and central bank credibility. In the long run, inflation will erode currency value. Exchange rates reflect investors' judgments: who can better protect purchasing power? Who is more likely to compromise under inflationary pressure?
Recent data shows that the UK's inflation rate has risen to **3.4%**, and the market has begun to discuss whether this will slow the Bank of England's future rate-cutting pace. Monthly data cannot determine currency trends, but the market will continuously adjust expectations based on new data, with inflation being a key variable among them.
Third, economic growth, risk appetite, and instinct for hedging. When global markets panic, the dollar often becomes a 'safe-haven asset' that is heavily bought. This is not a compliment to US politics, but an instinctive response formed in the operation of the global financing system.
If you have observed the scenario where 'dollar liquidity tightens and **$BTC** prices fall', you can understand this logic—people will scramble to hold assets that can complete payments and settlements the fastest. This hedging behavior can strengthen the dollar without relying on '1 dollar exceeding 1 pound'.
Fourth, trade and capital flows. There are differences in the external balance structures of the UK and the US, and the types of investors attracted to assets in both countries are also different. These capital flows directly affect exchange rates. At the same time, the global role of the US dollar means that the US must supply dollars to the world through trade deficits and capital markets.
To be frank, this part of the logic is indeed confusing—and your intuition is correct; the market itself is complex.
What people refer to as 'purchasing power' is not the spot exchange quote. If you want to ask 'what can actually be bought with these currencies?', then you are focusing on another question: purchasing power parity.
This concept advocates that different currencies' real values should be compared based on 'local prices of the same basket of goods'. The Organization for Economic Cooperation and Development's definition of purchasing power parity is clear and practical: it is the exchange rate conversion factor that eliminates price level differences among countries and achieves equalization of purchasing power.
Purchasing power parity explains why 'even when the exchange rate shows a currency to be 'strong', tourists still feel poor in some countries and wealthy in others'. The spot exchange rate is the 'market transaction price' of the currency, while purchasing power parity is a tool for 'converting currency into everyday purchasing power'.
The 'Big Mac Index' is a popularized tool for measuring purchasing power parity. In crypto logic, spot exchange rates are equivalent to the 'transaction prices' of cryptocurrencies; purchasing power parity is similar to 'actual value after deducting local costs'. Neither is an absolute truth; they simply answer different questions.
So, under what circumstances can 1 dollar 'exceed' 1 pound? This is a prospect for the future, and it is where the crypto thinking model can truly play a role. We have long been accustomed to analyzing probabilities within scenario ranges.
The GBP/USD exchange rate falling to 1:1 or below is essentially a fundamental change in market mechanisms or trends. This situation is not impossible; it only requires a set of persistent forces pushing in the same direction for a long enough time. Here are three easily understandable core scenarios.
Scenario one: The UK cuts rates faster, more significantly, and for a longer duration. If the UK economy continues to grow weakly and inflation falls, the Bank of England may adopt an aggressive rate-cutting policy. 'Expected returns decreasing' will weigh on the pound exchange rate.
However, this scenario has constraints: the current inflation issue in the UK has not been fully resolved, making the narrative of 'rapid rate cuts in the short term' difficult to establish recently. To achieve an exchange rate below 1:1 through this path, it may require UK interest rates to be significantly lower than US rates for a long time, combined with the dual condition of economic growth differences leading investors to continue favoring dollar assets.
Scenario two: UK risk premiums rise again. Sometimes, currency fluctuations do not stem from mild differences, but from investors suddenly demanding higher risk compensation to hold assets of a certain country.
If the UK faces a crisis of fiscal credibility, political turmoil, or external financing shocks, the pound's exchange rate may be quickly re-evaluated. This is similar to a 'liquidity crisis' in the crypto space. If this risk premium remains high, the likelihood of the pound reaching parity with the dollar will rise significantly.
Scenario three: Global risk aversion sentiment rises, and dollar liquidity dominates the market. If global markets enter a long-term risk-averse mode and demand for dollar financing increases, the dollar may be continuously bought, with the duration exceeding most people's expectations.
Crypto traders are not unfamiliar with this scenario: at this time, all asset trends tend to align, and leveraged funds are forced to liquidate. In this environment, even if the UK does nothing wrong, the pound may weaken. And 'the pound reaching parity with the dollar' may just be a side effect of rising global dollar demand.
All the scenarios above do not require 'the US to become stronger'—they only require 'the market to be willing to pay a higher relative price for the dollar than for the pound'. It is important to understand that 'strength' relates to politics, institutions, and scale; while 'price' relates to capital flows and market expectations.
The core insight for readers in the crypto space: if you can only remember one thing, please remember that 'the pound has a 'higher value' than the dollar at the unit level' is essentially an illusion caused by currency unit settings; while the market price of the currency pair is what truly deserves attention.
A more convincing way to understand this is to view the pound and the dollar as 'two blockchains'—they compete in terms of credibility, policy, incentive mechanisms, and trust levels, while the exchange rate is the real-time chart of this competition.
When people debate whether the dollar unit should exceed the pound, they are essentially trying to make the world 'orderly', just like the clear ranking of cryptocurrency market values. But currency does not owe us such 'order'.
They are historical products wrapped in modern macroeconomics, and exchange rate charts are where history and reality intersect. If you want to understand why the purchasing power of 1 pound still exceeds that of 1 dollar, stop focusing on the numerical value of currency units and instead pay attention to the forces that determine exchange rates: interest rates, inflation, risk, and the silent daily question of the market—where should I put my funds in the future?
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