Get the Best GBP/USD Exchange Rates for Forex Trading

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We all know that the Forex market is not only the largest financial market but also the most liquid and volatile one, offering ample opportunity for traders to take advantage and magnify their profit. Forex trading is done in pairs, and the exchange rate is based on the price of one currency in relation to another currency. The most commonly traded currency pairs are called ‘Majors’ and include the popular GBP/USD pair, which represents the Great Britain Pound against the United States Dollar.

The GBP/USD pair is considered to be one of the most prominent currency pairings as it depicts two of the leading economies of the world. The GBP/USD pair represents 15% of all the currency exchanges. The symbol for Pound is £ while the symbol of Dollar is $. The current exchange rate of GBP/USD shows 1 Pound is equal to 1.25 Dollars, in other words, it means it will take 1.25 Dollars to purchase 1 Pound. The GBP/USD pair is called the ‘Cable’ and the third most traded currency pair in the Forex market. You can trade GBP/USD 24/7 but the prime time to trade is when the market is most volatile, which happens to be between 06:00 and 16:00 (GMT).

In the UK, the discussion of GBP/USD pair increased significantly in recent years and more so because of the Brexit, and this has increased the volatility among the traders complemented by the fact that the pair already trades in considerable volume. It is a tight spread for traders when it comes to Buy or Sell strategy, but the cost of trading is low, which is a feature and advantage of Forex trading.

History of GBP/USD Currency Pair

From the 1800s up until the 1920s, the Pound was considered to be the biggest currency in the world, and almost 60% of the world debt was owed in sterling. For example, $5 was equal to £1, and during the US Civil War, £1 was almost equal to $10.

From the late 1920s to 1944, the US Dollar caught up to British Pound and mostly due to the introduction of the Bretton Woods monetary system where the price of Dollar was relative to the price of gold. But in 1971, Pound became a free-floating currency, and after the collapse of the Bretton Woods monetary system, the US also dropped the Gold Standard and became a free-floating currency.

As the Pound was allowed to free float in comparison to the Dollar, the nominal value of Pound was said to decrease with time, and people thought that GBP is weakening slowly. But due to inflation the GBP/USD pair is exchanged in more or less on equal terms.

How to Trade GBP/USD Pair

There are numerous ways to trade GBP/USD in the Forex market, and some of the popular options include Spot trading, Futures, currency exchange-traded funds (ETFs), spread betting, and perhaps the most enticing option for traders may be through Contract of Trading (CFDs) where traders speculate on the difference of GBP/USD price between the opening and closing of the trade.

As a trader, when you are trading CFDs, you are trading on the underlying asset and have the luxury of using leverage. The short term trading can be done using leverage which means that with a smaller initial deposit you can trade a larger trading position and potentially magnify your profit if the market goes in your favour. The speculation can let you earn profits when you predict price change correctly, but due to leverage there are considerable losses when you predict wrong.

The most notable advantage of trading using CFDs is that you can trade in both directions, meaning going either long or short positions to try to profit. For example, if you predict that in coming days the economy of Britain is going to get stronger than you would go long or Buy GBP against the USD. Similarly, if you think that Britain will face an economic crisis that you would go short or Sell GBP against the USD.

How to read the Price Change in GBP/USD Pair

There are mostly two common ways to speculate on the exchange rate of GBP/USD pair, and that is by a fundamental analysis which is for long term investment and analyzing the price action through technical analysis which is short term and best for traders. The technical analysis is done by evaluating different elements on the price chart that is a graphical display of the value of the two currencies with time. The graphical information also shows the supply and demand patterns which can be recognized visually.

The GBP/USD chart shows whether the exchange rate between the Pound and Dollar is rising or falling. The GBP is the base currency, and USD is the quote currency. The GBP/USD pair touched a high of 1.313 on March 9, 2020, and a subsequent drop on March 19, 2020 when the exchange rate was 1.449.

The highest price that a trader is prepared to buy is known as the ‘Bid Price,’ while the lowest price that a trader is looking to sell is called the ‘Ask Price.’ For example, the trading price of GBP/USD is 1.2515/1.2519, it means that 1.2515 is the highest price that a trader is willing to buy GBP compared to Dollar. Consequently, 1.2519 is the lowest price a trader is ready to sell GBP against the Dollar. As a trader, you need to check on the economic calendar for upcoming news announcements and use support and resistance levels to plan your trades.

What causes price change in GBP/USD pair?

The GBP/USD pair is recognized as the most stable currency pairing due to its sheer volume of trading every day. But the exchange rate of GBP/USD is affected by different factors such as the difference of interest rates between the central banks of both the countries which is Bank of England (BOE) in Britain and Federal Reserve also known as the Fed in the US.

The value of GBP fell during the Great Recession at the start of 2009, but the GBP/USD pair rose to an all-time high in 2007 with exchange rate 2.10 but then it fell to 1.40. But in the preceding year after the Great Recession, the GBP managed to recover and trade at 1.60 against the US Dollar. The biggest impact on the GBP/USD pair came in 2016 when the UK decided to leave the European Union through a public referendum which came to be known as ‘Brexit’, and the GBP/USD pair fell nearly 10% in one trading session alone. The vote to leave the EU impacted negatively on the entire UK economy and negotiations had to be done to reclaim the trust of the investors.

The fundamental factors that affect both the GBP and USD currencies include Inflation, Interest rates, Unemployment, Gross Domestic Product (GDP), and changes in the domestic and international political scenario. Apart from the macro-economic factors, monetary policy is also one of the crucial factors that influence the exchange rate. The BOE and Fed communicate regularly and discuss the value of the currency pair. The function of BOE is to review the interest rate every month and keep the inflation rate low while the function of Fed is reviewing the interest rate at least eight times in a year and keep both the inflation and unemployment rate low. In recent times, the GBP/USD is affected by the coronavirus pandemic and the subsequent lockdowns in both UK and USA.

The information above is for education purposes only and cannot be considered as investment advice. Past performance is not reliable indicator of future results.