What is the GBP/USD currency pair?
The GBP/USD currency pair is composed of the United Kingdom’s pound and US dollar. The base currency is GBP, with USD as the counter currency. The GBP/ USD rate is the British Pound/US dollar currency pair. It is often referred to as ‘the cable’ and is one of the most frequently traded currency pairs. As one of the majors, the pound to dollar rate sports the highest liquidity and the lowest spread in the Forex market.
A brief history of the Great British pound
With 1,200 years’ existence and a history dating back to Ancient Rome, the Great British pound is one of the world’s best-known currencies. Originating from the old Latin word ‘poundus’ meaning weight, its symbol derives from the L in Libra.
Despite being in existence in continental Europe, it wasn’t until 928AD that the coin became the currency of England, under Athelstan, the country’s first king.
By 1717, the country began to define the value of the coin in gold, instead of the previously used silver. This was further reinforced in the 1800s by the initiation of the ‘official gold standard’ in Germany, making international trade easier as currencies were based on a standardised value. This was suspended in 1914 (WWI), reinstated in 1925 and removed completely in 1931.
After this time, the pound saw itself valued against the United States dollar. The past century of the pound’s history has been marked by dramatic price fluctuations, including high unemployment rates in 1976, the UK’s exit from the Exchange Rate Mechanism in 1992, the 2000s DotCom bubble, 2008 economic crisis and most recently the dive following the shock result of Brexit.
A brief history of the US dollar
One of the world’s most influential currencies, the US dollar dates its history back to Joachimstal, now modern-day Germany. In the town, silver ‘thalers’ were minted, each with a standardised weight – 29.2 g. These coins were widely used across the European continent and eventually found its way to the New World – America.
Following the American Revolution, in 1972 the newly formed US Congress instated the ‘thaler’ as the official currency, although at a slightly lighter weight – 27.0 g. This was done as a method of standardisation, following the corrupt ‘continental bill’ system.
Although still closely tied to the price of silver and gold, the US dollar has developed as a currency spawning a multitude of coins and notes. Today, the currency is controlled by the Federal Reserve, the central bank of the United States, established in 1913.
The USD is the world’s foremost reserve currency, held by numerous countries as part of their foreign exchange reserves. It also makes up one-half of seven of the world’s Forex pairs. The US dollar is denoted by the symbol $.
What factors affect the GBP/USD pair?
The GBP/USD pair shows a positive correlation to the EUR/USD currency pair, the interconnectedness of the markets, and the countries’ politics mean changes in the EUR/USD usually correlate with changes in the GBP/USD rate.
The key players to watch for changes to the GBP/USD rate are the respective financial bodies – the Bank of England in the UK and the US Federal Reserve. Monetary policy announcements, interest rate changes and other key news items can directly affect the volatility of the pair.
Additionally, the London City, the London Stock Exchange, and the European Central Bank are all influential factors for this currency pair. The extreme liquidity of the Sterling, GB’s stable monetary policy and overall standing in the financial world make it a popular trading choice, while the USD holds its spot as the world’s most traded currency.
Where can the GBP/USD pair be traded?
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