Although other financial markets, such as the cryptocurrency one, have emerged exponentially in the past few years – the Forex market is still unmovable. With a daily turnover that surpasses $5 trillion, the Foreign Exchange market is the top choice of millions of traders each day. Find out below why the GBP/USD currency pair is the best investment solution in 2019!
The GBP/USD currency pair – Brief History
The GBP/USD is one of the oldest traded currency pairs and it is nicknamed in the foreign exchange the “Cable”. This slang term originated in the mid-19th century, when in July 1886, the first successful exchange rate between the U.S. dollar and British pound began to be transmitted across the Atlantic by a submarine communications cable. The first attempt took place in 1858, but it failed after almost a month of operation.
Nowadays, the transatlantic communications are carried by optical fibre cables and satellites – but forex traders still refer to the British pound vs. the US dollar pair as the cable, which alludes to the old communications cable.
The main characteristics of the GBP/USD currency pair
The GBP/USD, one of the most traded currency pairs in the foreign exchange, is an abbreviation for the British pound and the U.S. dollar. It represents two influential economies, the United Kingdom and the United States and the pair tells the trader how many U.S. dollars (the quote currency) are needed to purchase one British pound (the base currency). Its value is quoted as 1 British pound per X U.S. dollars. This pair is part of the Majors category, which constitute the largest share of the foreign exchange market, around 85%.
In Forex, interest rates are fundamental, as they basically determine the value of a currency. For instance, if the interest rates go up in a certain country, interest in that country’s currency goes up. In the United Kingdom, benchmark interest rate is set by the Monetary Policy Committee (MPC) and the Bank of England (BoE) official interest rate is known as the repo rate (repo is short for repurchase agreement). The repo rate is the rate at which the BoE lends money to commercial banks in case of any shortfall of funds. It is typically used by monetary authorities to control inflation.
The interest rate of the U.S. dollar is set by the central bank of the United States – the Federal Reserve. It is updated and published eight times per year by the Federal Open Markets Committee (FOMC). As the U.S. dollar is on one side of all the major currency pairs, the interest rates established by the FOMC affect not only the value of the U.S. dollar but they affect the overall movement of the foreign exchange market.
When it comes to correlations, due to the positive correlation of the euro, Swiss franc, and the British pound, the currency pair generally has a negative correlation with the USD/CHF (U.S. dollars vs. Swiss Franc) and a positive correlation to the EUR/USD (Euro vs. U.S. dollar) currency pairs.
Factors that influence the GBP/USD pair
When you trade any currency pair, the interest rates of the countries they represent are two variables you can’t overlook. However, other economic factors are equally important. The Gross Domestic Product (GDP), the unemployment rate, inflation, or the Consumer Price Index (CPI) can also provide you with valuable insight on how healthy the economy of a country is.
High-impact news or political and social events can also affect dramatically the outcome of your trade. Brexit is the strongest example! In June 2016, when Britain voted to leave the European Union, it was seen as a negative sign for the British economy. The pair fell 10% in one trading session and lost around 20% in the month after the Brexit vote.
Why the GBP/USD is a worthy investment in 2019
The entire Brexit scenario caused a lot of reactions on the foreign exchange, and the GBP/USD currency pair continues to offer profitable investment opportunities. The strength of the U.S. dollar is likely to dictate the price momentum of the pair until further decisions regarding the Brexit proceedings will be made. As Brexit has been delayed, major reactions in the pair are expected over the course of this year. Being there when the breakouts happen will definitely make it a worthy investment!
According to the Forex Daily Report, in April 2019, the EUR/GBP range is expected to span between 1.3000 – 1.3250 and close inside the range by the end of the month. At the moment, a breakout from the triangle pattern on the GBP/USD daily chart is expected. The next direction will depend on the breakout direction.
Conclusion
The GBP/USD is the oldest traded currency pair and is among the top five most-traded currency pairs in the Forex market. This year, due to the on-going Brexit events, the pair will see a lot of movement and will provide traders with a series of outstanding trading opportunities.
