How can free-floating currencies be devalued?

Your guide to trading GBP / USD

May 31, 2019

Why is GBP / USD important to traders?

The pound / dollar exchange rate is one of the most liquid currency pairs in the FX market. The tight bid-ask spreads, volume and volatility are what make GBP / USD trading so popular.

It is one of the financially strongest currency pairs and the third most traded currency pair in the world. In this market, the pound sterling is the base currency and the US dollar is the listing currency. In other words, the GBP / USD rate represents the amount of dollars that one would buy for one British pound at any given time.

GBP / USD trading: trading hours

In theory, Forex pairs can be traded 24/7, but there are peak times for trading GBP / USD when the currency pair is more volatile. Peak times for GBP / USD are generally between 06:00 and 16:00 (GMT).

The history of GBP / USD

During the 1800s until the beginning of World War I, £ 1 was valued at a fraction below $ 5. Exceptionally, during the US Civil War, the pound temporarily rose to $ 10. The pound sterling was considered the largest currency in the world, holding over 60% of global sterling denominated debt, prior to World War I.

The US dollar caught up in the early 1920s. And by 1944, with the concept of the Bretton Woods Monetary System (an idea that the dollar should be pegged to the price of gold, thus becoming the world's unofficial reserve), the GBP / USD rate became £ 1 : $ 4.03 fixed.

In 1971 the pound became a free-floating currency as the Bretton Woods system slowly collapsed. At the same time, the US dollar became free and the US decided to abolish the gold standard. As a general rule of thumb, the face value of the pound has declined over time since the pound has been able to float freely against the dollar. This led people to believe that the pound was slowly weakening. However, adjusted for inflation, it looks very different. Prof. Elroy Dimson, Prof. Paul Marsh and Dr. A study conducted by Mike Staunton of the London Business School found that the couple has actually remained on par since World War II.

 

In the past, there have been two instances when the GBP / USD crashed, i.e. the pound has depreciated against the dollar, or the dollar has depreciated against the pound.

  1. In the aftermath of the global economic recession (the Great Recession) in early 2009, the pound hit its 7-year low when the £ 1 value was below the $ 1.40 support ($ 1,386). It was speculated at the time that it was an impact of a multi-billion pound government lifeline thrown in support of the banking sector.

  2. In 2016, the UK held a referendum that resolved the UK to leave the EU by March 2019. The next morning after the earnings announcement, the pound sterling fell to its lowest level against the US dollar since 1985. During the day, the pound fell 8%. This was the largest daily loss in pound history since the free exchange rate was introduced after the collapse of the Bretton Woods system in 1971.

The factors affecting GBP / USD

There are tons of factors that affect both currencies in general and each of them over the long term. Changes in: GDP, employment, interest rates, inflation rates and political upheavals in the local economy affect each of the currencies concerned. Monetary policy is one of the most important factors influencing GBP / USD.

News from both central banks can be the main determinants of the value of the currency pair. The UK Bank of England reviews rates monthly, while the US Federal Reserve rates rates eight times a year. Brexit is currently an important factor influencing sterling. The UK’s relations with the EU, whatever they are, will be a major factor in the foreseeable decade.

How to trade CFDs on GBP / USD

GBP / USD is one of the ‘majors’ in the Forex market. The majors are the currency pairs with the highest daily trading volume. In addition, it is of course one of the oldest tradable currency pairs on the market. One can trade GBP / USD with the help of a forex contract. Alternatively, you can trade a contract for difference (CFD) - on a specific currency pair - and speculate on the price difference.

A CFD is a financial instrument, typically between a broker and an investor. One party agrees to pay the other party the difference in value of a security between the start and the end of the trade. You can either hold a long position (speculating that the price will rise) or a short position (speculating that the price will fall). This is considered a short term investment or trade as CFDs are mostly used for a limited time.

Trade British Pound / US Dollar CFD

For example, when trading CFDs on GBP / USD, you are speculating on the direction of the underlying asset. If you think the pound is going to rise, take a long position by buying CFDs. If you think the pound is going to lose value against the dollar, then take a short position by selling CFDs.

Trading CFDs on GBP / USD: why with Capital.com?

Advanced AI technology at its core: A news feed like on Facebook offers users personalized and unique content that corresponds to their preferences and preferences. If the trader makes the decisions that are based on a bias, the innovative SmartFeed offers a range of materials to get him back on track. The neural network analyzes the behavior in the app and suggests videos, articles and news that will help optimize your investment strategy.

Trading on margin: By offering margin trading (30: 1 for large currency pairs), Capital.com grants you access to GBP / USD using CFDs.

Trading in Contracts for Difference:When trading CFDs on GBP / USD, you are only speculating on the rise or fall of its price. CFD trading is no different from traditional trading in terms of strategies. A CFD investor can go short or long, place stop-loss and stop-limit orders, and use trading scenarios that suit his or her goals.

All-round trade analysis: The browser-based platform allows traders to use fine technical indicators to create their own market analysis and forecasts. For example, a trader can have GBP / USD analysis and forecasting as a large part of their feed. Capital.com offers live market updates and various graphic formats, and is available for desktop, iOS and Android.

Focus on security:Capital.com pays special attention to security. Approved by the FCA and CySEC, it complies with all regulations and ensures that customer data security is paramount. The company enables the money to be withdrawn around the clock and keeps the merchants' funds in separate bank accounts.

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