Before Floating Rates: What Bretton Woods Meant for Intraday Trading

[Shadow Trader]

The modern floating-rate market is a relatively young arrangement. Under the Bretton Woods system, agreed in 1944, participating currencies were pegged to the dollar within narrow bands, while the dollar itself was convertible into gold at a fixed official price. Exchange rates were largely policy decisions rather than market outcomes.

Strains built over the following decades. Persistent American deficits and growing dollar holdings abroad raised doubts about whether the gold backing was sufficient. In August 1971 gold convertibility was suspended, and attempts to patch the system with revised parities, such as the Smithsonian Agreement, did not hold. By around 1973 the major currencies were floating.

The consequence for scalpers is easy to overlook. A continuous, two-sided market with intraday movement exists largely because currencies stopped being fixed. Spreads, sessions, news-driven spikes and short-term order flow are all products of that shift. Under fixed parities, there was very little short-term price movement to trade at all.

Residual pegs and managed regimes still exist today, including currencies tied to the dollar or to baskets. That explains why some pairs barely move for long stretches and occasionally gap violently when a regime is altered. Knowing which currencies are genuinely free-floating helps in judging what kind of volatility to expect.