Currency, like any other commodity, has a price, and the pound sterling or the pound sterling (GBP) is no exception. Obviously, the price of the British pound has depreciated against the US dollar over the long term, but it has appreciated against the US dollar over a short period of time. Indeed, according to data from the World Bank (2010), the price of the pound sterling fell slightly compared to that of the US dollar, going from 1.65 on September 1, 2009 to 1.55 on August 15, 2010. However , this survey also reveals that the price of the pound sterling against the dollar has increased steadily between 1 0.45 and 1.55 since last month. Thus, the causes of the fluctuation of the GBP nominal exchange rate have caused heated discussion. The aim of this essay is to explore the determinants of the nominal exchange rate of the British pound and forecast its future trend. First, it will give a definition of the nominal exchange rate in relation to the real exchange rate. Second, three factors that determined the GBP nominal exchange rate will be analyzed. Finally, it will predict the future trend of the British Pound exchange rate based on the determinants. It is common to classify the exchange rate into two types, nominal exchange rate and real exchange rate. Nominal exchange rate defined as the value of the national currency in relation to a foreign currency without taking into account the inflation rate (Piana, 2001). Similarly, Basak and Gallmeyer (1998) argue that the nominal exchange rate is expressed as the number of units of the national currency that can purchase one unit of another currency. For example, if the nominal exchange rate between GBP and USD is 1.55, then one pound will buy $1.55. In contrast, the real exchange rate takes into account inflation, which reveals how much goods and services available middle of paper...... the final exchange rate will increase slightly in the future. , S. & Gallmeyer, M. (1998) Currency Prices, Nominal Exchange Rate, and Securities Prices in a Dynamic Two-Country Monetary Equilibrium, Unpublished Paper Weiss Center for International Financial Research, Wharton SchoolFieleke, N. (1999 ) 'What Is Balance of Payment', Survey of Current Business, July 1999, pp.60-74 Piana, V. (2001) 'Exchange Rate: A Key Concept in Economics', at: http://www.nomicswebinstitute.org /glossar/ exchrate.htmDrab, B. (2005) Deternments of Nominal Exchange Rates, unpublished article, International Financial Management, Harvard Business School, US Chinn, M. (2006) “Real Exchange Rate”, National Bureau of Economic Research, February 4, 2006 World Bank Data (2010), at: http://search.worldbank.org/data?qterm=gdp%20exchange%20rate&langage=EN&format=html