GBP/USD Live Exchange Rate
Trading GBP-USD: Everything You Need To Know About The Currency Pair
It is no surprise that the GBP -USD currency pairing is one of the most popular currencies for forex traders nowadays.
The Great British Pound (GBP) is the currency of the United Kingdom which has the fifth largest economies in the whole world. The United States Dollar (USD) is the currency of the United States of America which has the largest economy in the world at the moment.
Currency traders are attracted by the high value of both currencies and the fact that in recent years the market has become more volatile. The turbulence has been caused by economic problems around the world and a recent interest rate hike by the Bank of England. The volatility between the two currencies may present an opportunity for traders to make some money, as we’ll explain in a moment. On the other hand, there are many risks that might affect your trades and might cause you to lose your money.
In this guide, we will explain how the GBP to USD exchange rate works, and how you might trade the GBP-USD currency pair.
A Brief Overview of the GBP-USD Pairing
Before diving in to look at trading strategies and styles, it would be a good idea to understand some of the basics of currency trading.
When you trade a currency pair, both currencies play a role in the trading process and outcomes. When we talk about the GBP/USD trading pair, we mean that the GBP is the base currency, and the USD is the terms currency. If we switched them around to a USD/GBP pairing, then the USD would be the base currency and the GBP would be the terms currency.
The exchange rate is best explained with an example.
Let’s say that the current GBP-USD exchange rate is 1.3, this means that you would need 1.3 units of the terms currency (USD) to buy 1 unit of the base currency (GBP).
In other words, you would need 1.30 USD to get 1.00 GBP or 2.60 to get 2.00 GBP, and so on.
Using the same example, if you want to sell GBP-USD currency, you would get 1.30 USD for every 1.00 GBP that you sell.
A Brief History Of GBP-USD
The GBP-USD is considered to be the oldest currency pair in history and has existed since the 1800s.
The average exchange rate back in the 19th century was around 5 to 1, which meant that 1 GBP was worth roughly 5 USD. After the US Civil War, the US economy was damaged considerably and the value of the USD plummeted, which meant that the GBP-USD peaked at an all-time high of 10:1.
By the time the first World War broke out, the currency pair had dropped to 3:1. After the Second World War, the United States Dollar became the primary currency used in trade between several countries and traders, which strengthened the dollar further.
By the 1980s the GBP-USD tended to fluctuate between 1.5:1 and 2:1.
During the financial crisis of 2009, investors bought up more United States Dollar since it considered to be a more secure currency and the GBP fell in price.
In recent years, the coronavirus pandemic, Brexit, and global economic problems have led to the GBP- USD falling to an almost 1:1 level.
Volatility in the GBP-USD Currency Pair
There are many factors that may cause volatility in a currency pair.
The economies of the United Kingdom and the United States are very large, which means that the demand for both currencies is ever-growing. Therefore, any changes in the global economic outlook may cause turbulence in the exchange rate.
The Bank of England is the UK’s central bank. The Bank of England publishes a Monetary Policy Summary eight times per year, which reveals whether there will be interest rate cuts or rises.
The US Central Bank, known as the Federal Reserve, issues a statement from the Federal Open Market Committee (FOMC) eight times a year to set interest rates for the forthcoming period.
Interest rate rises may lead to an increase in the value of the currency and interest rate cuts may lead to reduce the currency value. Therefore, GBP-USD traders watch the central bank statements from both countries closely, as it could determine their strategy for the coming period.
Political events may also cause large movements in currencies and trader behavior. Events such as general elections, congress votes, party leadership changes, and budget announcements may affect trading prices.
Most traders use some kind of GBP-USD technical analysis for taking their trading decisions, such as economic and political events, as well as historical data.
How To Trade GBP- USD
The two main ways to trade the GBP-USD pair are spot trading through a foreign exchange (forex) platform or CFDs (contract for difference).
- Spot trading – The spot price of the currency pair is the current exchange rate. For instance, if the GBP-USD spot price is 1.2, it means that the exchange rate is 1:1.2. Spot trading uses over-the-counter (OTC) contracts between banks to complete the trades. Currency traders buy and sell GBP-USD at the market price and try to make a profit (instead of a loss) by predicting rising or falling prices. Traders use a forex platform to access the OTC market.
- Contract for difference (CFD) – CFD trading takes a different approach, whereby the trader takes a long or short stance on the market, without ever owning any currency assets. Going long or taking a long position is an expectation that the market price will rise and in this case, the trader might buy a CFD. Going short is an expectation that the price will fall and the trader might sell a CFD.
In both cases, a trader can go short on the GBP-USD by selling CFDs or currency if they expect the value of the British Pound to fall against the US Dollar. Alternatively, they can go long by buying CFDs if they think the British Pound will gain against the US Dollar.
You might begin to trade forex GBP to USD CFDs today by signing up for an account at TradeEU. Once you finalize the registration process, you will get access to a reliable forex platform, as well as several trading tools and resources that may help you refine your strategy.
More Convenient Times To Trade GBP-USD
Traders are free to trade at any time they wish, as the currency markets are open for trading 24/5.
However, certain times are considered to be more favorable than others when trading the GBP-USD currency pair, it’s always good to have the high risks in mind.
The time that is considered to be more convenient to trade GBP-USD might be when the New York and London stock exchanges are both open. In other words, you might be looking to trade between 08:00 and 10:00 GMT and 12:00 to 15:00 GMT.
At these times, stock market trading might affect the exchange rate and there might be greater volatility, which potentially makes it more favorable for traders, but of course without any guarantee.
In contrast, there are times when it is considered to be a bad time to trade GBP-USD. For instance, when markets in both New York and London are only just opening, it is recommended to be avoided. Low market activities are recorded during these times, which may reduce the potential for favorable trading.
Frequently Asked Questions
Where can I trade GBP / USD?
You may start trading GBP-USD CFDs today by signing up for an account at TradeEU and getting access to a reliable forex trading platform, as well as trying several trading tools and resources that might assist you in trading.
If you are a beginner, TradeEU will provide educational materials to assist you, such as tutorials webinars, and more.
How do I trade forex GBP to USD?
CFDs are one of the most popular ways to trade the GBP-USD without owning any underlying asset.
A trader may go short on the GBP-USD pair by selling CFDs if they expect the value of the British Pound to fall against the US Dollar.
Otherwise, traders may go long by buying CFDs if they think that the British Pound will gain against the US Dollar.
When can you trade in GBP-USD?
The forex currency markets are open around the clock, so you may trade at any time of the day or night. However, most currency traders believe that you might target the time of the day when the New York and London markets are both open. Trading between the times of 08:00 and 10:00 GMT or 12:00 and 15:00 GMT are generally considered to be the optimal times. When trading currency pairs, you may look for both respective markets to be at their most active.
What time is GBP-USD considered to be most volatile?
When both the New York and London markets are open, the GBP-USD tends to be more volatile. When markets are at their most active, the currency exchange rate may be prone to change and tends to be relatively convenient for forex trading.
Why is GBP-USD so popular?
The GBP-USD pair represents currencies from two of the largest economies in the world. Both the USD and GBP are commonly used in world trade across various countries.
Start forex trading with TradeEU today.