Market Analysis
The British pound and US dollar currency pair, or cross, is known by its acronym, GBP/USD (British pound/US dollar). The exchange rate between the two currencies indicates how many US dollars (the quote currency) are required to buy one British pound (the base currency).
As of 2023, 11% of the forex market is accounted for by the third-largest trading pair, GBP/USD. One term for trading the GBP/USD currency pair is the "cable."
Knowing the British Pound/U.S. Dollar, or GBP/USD
The GBP/USD exchange rate is expressed as one British pound for every X US dollars. For instance, if the pair is trading at 1.50, that indicates that one British pound is worth 1.5 US dollars.
One of the top five most traded pairs worldwide is the GBP/USD. It is impacted by variables that determine how much the US dollar and/or British pound are worth in reference to other currencies and each other. Because of this, when comparing the value of these currencies, the difference in interest rates between the Federal Reserve and the Bank of England (BoE) will have an impact.
The value of the GBP/USD cross may decrease if the Fed engages in open market interventions to boost the US currency, for instance, since this will result in the US dollar appreciating relative to the British pound.
Brexit, the Great Recession, and Beyond
During the Great Recession, the British pound experienced a significant decline in value. The GBP/USD exchange rate reached an all-time high of $2.10 in 2007; however, it fell below $1.40 in 2009, losing more than one-third of its value as investors fled to the US dollar, which was perceived as a safe haven. The British pound recovered in the roughly five years that followed the Great Recession, trading at about 1.6 in relation to the US dollar.
Following Britain's vote to exit the European Union in June 2016, the GBP/USD saw yet another steep fall. In the month before the Brexit vote, the GBP/USD pair lost around 20% of its value and dropped 10% in a single trading session. Due to the uncertainty surrounding the need to renegotiate trade agreements, the vote to leave the EU was viewed as detrimental to the British economy, and as a result, investors began to withdraw money from the country at an unprecedented rate.
Liz Truss succeeded the troubled Boris Johnson as prime minister of the United Kingdom in September 2022 after he resigned in the face of several scandals. After assuming office, Truss unveiled intentions to reduce taxes broadly in an effort to increase economic output in the United Kingdom.
Investors and currency traders, however, seemed to be worried that the Truss administration's economic plans would raise the nation's already high level of debt and worsen inflation. On September 26, 2022, the GBP/USD hit an all-time low of about $1.03 due to the market's unfavorable reaction. The pair was trading at just over $1.12 in early October 2022, after a minor rebound.
The rate began to rise once more in 2023; from March to June of that year, it increased steadily, reaching a mid-June level of about $1.28.
Correlations
When it comes to currency pairs, the GBP/USD typically has a negative correlation with the USD/CHF and a positive correlation with the EUR/USD. This is because the British pound, the euro, and the Swiss franc all have positive correlations.
The Australian and New Zealand dollars were also strongly connected with the GBP/USD prior to the Great Recession, as investors bought these high-yielding currencies using a method known as carry trading.
How Would I Compute GBP Against USD?
To convert British pounds to US dollars, just multiply the amount by the exchange rate between GBP and USD on the conversion day. On June 17, 2023, for instance, if you were converting 800 British pounds into US dollars, you would multiply £800 by the current exchange rate of $1.28 to obtain $1,024. Instead of multiplying, you would just divide the amount from dollars to pounds by the conversion rate.
How Can I Exchange USD for GBP?
Through a forex broker, you can trade any other currency pairing in addition to GBP and USD. Similar to a stock brokerage, a forex broker specializes in foreign currency goods.
Can the GBP outperform the USD?
A single pound has historically been worth more than one dollar since the British pound (GBP) is stronger than the US dollar; however, this has changed, especially following the 2008 financial crisis.
Conclusion
The currency pair that is most often traded worldwide is the U.S. dollar and the British pound, or GBP/USD. The amount of US dollars required to buy one British pound is shown by the current value of the GBP/USD pair. The GBP/USD rate is influenced by a number of variables, such as economic indicators and decisions made by the central banks of both nations on currency devaluation or appreciation.
Disclaimer
Derivative investments involve significant risks that may result in the loss of your invested capital. You are advised to carefully read and study the legality of the company, products, and trading rules before deciding to invest your money. Be responsible and accountable in your trading.
RISK WARNING IN TRADING
Transactions via margin involve leverage mechanisms, have high risks, and may not be suitable for all investors. THERE IS NO GUARANTEE OF PROFIT on your investment, so be cautious of those who promise profits in trading. It's recommended not to use funds if you're not ready to incur losses. Before deciding to trade, make sure you understand the risks involved and also consider your experience.