Relative value of currencies - a basic question

I have been learning about the forex market for almost 5 years now. My father recently asked me a question that I could not answer. His question was why is the British Pound valued above most other currencies? A more general question would be, what are the factors that determine relative values between currencies?

I know the relative interest rates of two currency pairs effects valuation. What else?

Your question got me thinking that this is the probable reason. Historically the pound was simply more gold than the dollar. This must have been carried forward when they both became fiat currencies.

http://www.cyberussr.com/hcunn/gold-std.html

the market decides the relative value of something ,
demand and supply
bid and ask

Agreed. It goes back to the days when money was valued by the amount and type of metal found in the coin.

Hello, historically the UK has had higher interest rates than those in the US. (This had to do with a lot of things, but mostly inflation due to housing, wages, and North Sea Oil production) The key point to keep in mind is that two forces influence currency movement: yield and liquidity. Over the long time scale, yield dominates so we can see that the Pound has been much stronger than the Dollar because of that. However, in the short term, flight to liquid assets supports the dollar. Hope this helps.

Kris

http://www.hbosplc.com/media/include...e%20trends.jpg