The US pound is one of the oldest currency pairs in the world. This pair is often referred to as the “cable” because the first transatlantic communications cable connecting Great Britain to the United States was used to transmit currency prices between the two countries. Cable remains a favorite among traders today given the size of the UK economy.
What is the pound sterling?
The British pound or pound sterling is the currency of Great Britain. Derived from the term “scales” used in Roman times, the pound was first a measure of weight. Over time it became the currency of the British Isles, and as the British Crown greatly expanded its overseas empire, the pound was the most prestigious currency in the world. A study published by the House of Commons Library claims there was no discernible long-term fall in the value of the pound between 1750 and 1914. In contrast, since 1945, “prices have risen every year, with a cumulative increase of more than 27 times.”
Today, the UK's GDP is about $2.67 trillion, with a nominal per capita income of $43,000. The country has a significant trade deficit of more than $150 billion. Strict government regulations and a tight labor market have negatively impacted the country's economy. The economy has since stabilized, partly due to London's emergence as a global financial center. The UK is also the second largest oil and gas producer in Europe after Norway.
Partly because of Britain's large role as a financial center, partly because of its imperial heritage, sterling shares reserve currency privileges with the Swiss franc and the Japanese yen, accounting for about four percent of world reserves. The currency was hit hard by the 2007-2009 turmoil and fell from a 26-year high of $2.1161 to $1.65 in November 2009, with a low of $1.35 in January of that year.
In 2016, the UK held a referendum which decided that the UK would leave the European Union by March 2019. On the morning after the results were announced, sterling fell to its lowest level against the US dollar since 1985. The pound fell 8% that day, the pound's biggest one-day fall since floating exchange rates were introduced following the collapse of the Bretton Woods system in 1971.
What is the US dollar?
The US dollar is the world's global reserve currency. The global financial system, consisting of international organizations such as the World Trade Organization, the IMF, and the World Bank, was founded on the expectation that the United States would continue to dominate the world economy.
Today, the United States is the largest economy in the world, but suffers from high unemployment (over 10%), a banking sector in poor health, recent asset price deflation, and ongoing wars in various parts of the world.
With interest rates very close to 0%, many traders and analysts are questioning the long-term viability of the dollar as a global currency, as expectations of high inflation are leading to significant currency depreciation. However, the US is still the dominant economic power in the world and there are currently no serious international plans to dethrone the dollar from its status as the world currency at this time.
How to trade pound dollar?
There are many factors that will affect the pound dollar chart in the long term. Changes in GDP, employment, interest rates, inflation rates and political shifts in the national economy will affect each currency accordingly.
GBPUSD has limited correlation with EURUSD. The pair is more suitable for scalping strategies than EURUSD due to its higher volatility. GBPUSD also experiences strong trends from time to time, so long-term traders will also find fertile ground for their trading systems, although the high level of volatility can fray nerves. You can also use a carry trade strategy since the Bank of England offers higher rates than the Fed most of the time. Overall, the pair is a good and flexible choice for most trading strategies.
Monetary policy is one of the most important factors influencing GBP/USD. Communication from both central banks can be one of the main factors determining the value of a currency pair. The British Bank of England revises interest rates every month, while the US Federal Reserve revises rates eight times a year. A factor specific to the pound at the moment is Brexit. Britain's relationship with the EU, whatever it may be, will remain a huge influence for the foreseeable future.
The GBPUSD pair mainly moves during the European and USD sessions as the European market is the most active, so you should pay attention to trading during these sessions and avoid trading the Asian markets.
