GBPUSD

The GBPUSD pair, also known as the “Cable,” comprises of the Pound Sterling and the US Dollar. It is one of the oldest and most liquid currency pairs in the world. The pair is traded 24/5, although the trade volumes are highest during the London session from 6:00 GMT to 16:00 GMT, further sustained by the New York session starting at 12:00 GMT.

Understanding the Quote

In the GBP USD pair, the Pound Sterling (GBP) is the base currency, while the US Dollar (USD) is the quote currency. This is a measure of the amount of USD need to buy 1 GBP. So, if the GBP/USD is trading at 1.2474, it means that it will take $1.2474 to buy £1.

Important Influences on the GBP/USD Pair

The GBP, which used to be the world’s dominant currency, still remains a highly important currency from an economic standpoint. It is the fourth most traded currency and third most widely held reserve currency globally.

There are several important macroeconomic factors that affect the GBP USD rate:

• Interest Rate Differentials: The Bank of England and the US Federal Reserve’s interest rate decisions impact currency values. Higher interest rates lead to a stronger currency and vice versa. If the UK interest rate rises, but the US interest rate doesn’t, the GBP could appreciate against the USD.
• Inflation Rate: Lower inflation rate usually correlates with higher currency value. Countries with higher inflation tend to see their currency depreciating against others. This could lead the Central Bank to raise interest rates. The GBP/USD rises when the UK’s inflation is consistently lower than that of the US.
• Current Account Balance: Balance of trade between a country and its trading partners, including payments for goods, services, interest and dividend, forms the current account. Higher imports than exports raises demand for foreign currencies, which leads to depreciation of the domestic currency. If the current account balance between the UK and US rises for the UK, the GBP/USD rate will rise. The oil sector particularly affects the UK’s current account balance. Lower oil prices tend to lead to a falling GBP.
• Political Conditions: Political uncertainties lead to currency depreciation, since foreign investors become hesitant to invest in the economy. For instance, the uncertainties associated with Brexit made the GBPUSD pair highly volatile.

Economic Releases That Impact the GBP/USD Pair