GBP/USD : Currency Trading

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GBP USD is the ticker for the pound-dollar exchange rate. GBP USD belongs to the “majors” group of Forex, which represents the currency pairs with the highest daily volumes.

In addition to being one of the oldest tradable pairs, GBP USD is also very liquid and offers traders significantly narrower spreads than miners.

The GBP USD currency pair has the pound sterling as the base currency and the US dollar as the currency of trading in Forex trading.

This means that the price of the GBP / USD at a given moment represents the amount of US dollars that would be needed to exchange for one pound sterling.


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GBP USD history

GBP USD has an interesting story because it represents currencies that, at different times in history, have been the world’s de facto reserve currency. It was Britain that colonized the United States and the pound sterling dominated world finance before the First World War in 1914, with more than 60% of the world’s debt held in the money. The US dollar then caught up with the pound sterling in the 1920s, and in 1944, in parallel with the global implementation of the Bretton Woods monetary system, the pound sterling was pegged to the US dollar. It was not until the dissolution of the system in 1971 that currencies began to float freely against each other on the markets.

Currently, the US dollar is the most widely held currency in the world. The pound comes in third, just behind the euro (EUR). GBP / USD has always been called Cable, referring to the first transatlantic communication cable that connects the United Kingdom and the United States, and has been used to transmit exchange rates between countries.

Volatility of the pair

Since the GBP / USD started trading, it has had some strong moments in its history.

In 1992, the 16th of September, a day known as Black Wednesday, GBP / USD dropped 25%, with Britain leaving the European exchange rate mechanism.

A more recent climax would be the Brexit 2016 vote that secured Britain’s exit from the European Union. The GBP USD lost more than 10% in a day after the release of newspapers that the United Kingdom had indeed voted to leave the EU.

Apart from these highlights, the GBP / USD has historically hit record highs of 2.46 and historical lows of 1.05.

All these extremes were posted in the 1980s. During the global financial crisis of 2007/08, the pair reached a high of 2.11 and a low of 1.426.

What make GBP USD moving ?

Monetary policy is a major factor influencing the GBP / USD, as evidenced by one of the pair’s key highlights. In the United Kingdom, the Bank of England publishes its rates every month.

It is important to note that the BOE does not track rates when it keeps interest rates, but will do so when it raises or lowers interest rates.

For the United States, the Federal Reserve will release rates eight times a year; and with the US dollar being the largest reserve currency in the world, the eight dates are very important for the markets.

Employment figures are also very important for both economies, as they generally guide central bank monetary policy. The United States Bureau of Labor Statistics and the United Kingdom Office of National Statistics publish employment figures on a monthly basis. The numbers generally stimulate a lot of volatility on the GBP / USD pair.

In addition, the GBP USD has been very sensitive to the new policies, and traders should follow the political events in the UK and the US to take advantage of the potential triggers of volatility.

GBP USD is also positively correlated with the EUR USD, but negatively correlated with the USD CHF.

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