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Beginner Tips to Trade GBP/USD Currency Pair

Also known as “the Cable”, GBP/USD is one of the most traded currency pairs. It takes third place in the list of the most popular instruments among Forex traders after EUR/USD and USD/JPY. Investors can benefit from several reasons to trade this particular instrument.

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First of all, both the UK and the United States have some of the strongest and longest-running economies in the world. Secondly, the two nations deliver a solid level of safety. Currencies offer deep liquidity and a lot of volatility to ensure multiple options to enter the market and apply different Forex strategies.

Last but not least, even beginners will find it easy to generate necessary data that ensures proper decision-making.

In this article, we will highlight some crucial tips to trade GBP/USD.

About the GBP/USD Currency Pair

Traders call it “the Cable”. The asset got its moniker after the first transatlantic cable laid from the US to the UK back in 1858 to ensure effective communication. Mainly, the cable was used to transmit information and currency quotes.

The Two Economies

To gain success with Forex trading, one needs to have a clear understanding of how the country’s economy works. It will let traders make proper trading decisions and predict possible market moves depending on the news.

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Professional investors use not only traditional Forex indicators but also other sources of information. The main questions to answer are as follows:

  1. How do the two nations trade?
  2. How do they engage with the rest of the world?
  3. What is their trade balance?
  4. What steps do they take within monetary and fiscal policy?
  5. How do they act in the geopolitical arena?

In terms of GBP/USD, we can say that the United States appears to be the main destination for the UK’s imports including the automotive sector, healthcare and medical supplies, turbines, etc. In simpler words, the two economies are closely connected, which also makes the pair a favorable option to trade.

GBP/USD Trading Hours

Timing is very important when trading currency pairs. When it comes to GBP/USD, it is crucial to detect the optimum trading volumes. The pair comes with two suitable trading hours:

  • 3 am and 4 am EDT when the European and Asian markets intersect.
  • The time when the US and European markets intersect.

If you opt only for Asian markets, you can experience low volatility. To find major breakouts, it is better to follow the European market opening hours. What’s more, the crucial economic data is released during the US and European sessions as one of the factors to affect the exchange rate.

Understanding the Two Politics

When traders understand the idea behind the politics, it is easier to make accurate predictions based on news and the geopolitical situation. Trading GBP/USD can be a good option, as the two countries have quite similar political behavior. Besides, they enter the same economic and political blocks (G20, NATO, OECD).

This fact makes it simpler to monitor the dynamics of affiliations that can affect the traded currency in any way. For example, you should clearly understand how the exchange rate can move after specific discussions and official announcements during the G20 or G10 meetings.

Fundamental Factors That Move GBP/USD

When trading GBP/USD, investors should look for several fundamental factors that move the currency quotes and exchange rates. They include:

  1. The FED – when the Federal Reserve members start talking or making decisions, the GBP/USD trends are very likely to move.
  2. The Bank of England – the same happens when the BOE leaders start making decisions or discussing specific topics about monetary or fiscal policy.
  3. Inflation – soaring inflation that we are witnessing now results in higher interest rates and tighter economic measures.
  4. Employment Rate – the employment data on US and UK labor markets can also have a great impact on the GBP/USD quotes.

Make sure you clearly understand how central banks may intervene with the currency exchange rate and how their actions can move trends. Forex trading requires monitoring different events, the geopolitical situation, financial data, industrial production and other fundamentals.

Technical Analysis feat. Correlation

GBP/USD is one of the best currency pairs to trade with technical analysis. The main benefit here is that the instrument is capable of responding to major Forex indicators.

At the same time, correlation analysis helps you decide on the best [pair to trade taking into account current market data based on the trend moves.

Correlation Example

Let’s say, we consider the correlation coefficient of GBP/USD and EUR/USD. It is usually close to 1. It means that both pairs are very likely to move in the same direction. One can detect other crucial similarities between the two instruments using the correlation. It will let traders hedge two pairs simultaneously with minimum risks.

The Bottom Line

GBP/USD is definitely a good option to start with. It is one of the most popular currency pairs, which makes it a great option for beginners. The instrument comes with deep volatility, safety and other benefits backed up by the two strongest economies across the world.

To make your Forex trading even more successful, you can use traditional indicators and other important data. It may include news, geopolitical events, and other fundamental information to make well-thought decisions.

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.