You will learn about the following concepts
- Introduction to GBP/USD pair
- GBP/USD or the Cable
- Exchange rate factors
As we already mentioned, there are two types of currency pairs – majors and minors. There are 8 major pairs and the reason why they are called major is that they account for 85% of the daily trading volume in the Foreign Exchange Market. The situation is not that different when talking about binary options trading – traders prefer major pairs over the minor ones, because there is much more information about them and it is easier to recognize when a pair’s value will remain stable or when it will become more volatile.
One of the majors is the GBP/USD pair. It is the third most traded currency pair in the world and it owes its popularity to the fact that it contains two of the world’s most traded currencies – the U.S. Dollar and the British Pound. Each of these currencies is supported by two of the largest economies in the world, so it is fairly easy to detect signals which predict the upwards or downwards movement of the pair.
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GBP/USD or the Cable
This currency pair is also widely known as the Cable, so you may often hear people say that “they are trading the Cable”. So what does the GBP/USD actually represent? Its value shows how many U.S. Dollars you’d need to spend in order to purchase one British pound. In this case, the British pound is the base currency and the U.S. dollar is the quote currency. As of September 11th the current value of the GBP/USD is 1.6245, so one would have to spend $1.6245 in order to purchase £1.
Exchange Rate Factors
The value of this currency pair can be influenced by many factors. The most influential ones are the state of the British and American economies. A sudden expansion or crisis, that concerns one of the two economic forces will almost certainly lead to a drastic change in the Cable’s value.
Another popular way to determine the future price movement of the GBP/USD’s value is to take a closer look at the interest rate difference between the Federal Reserve and the Bank of England. In most cases, an increasing or decreasing difference between these rates will also result in a more volatile currency pair.
If the Federal Reserve intervenes in the global markets in order to strengthen the U.S. dollar, then it is very likely that the value of this pair will go down, because the U.S. dollar will have a stronger position against the British pound.