Why is GBPUSD a Popular Asset for Trading
The GBPUSD is well-known among retail Forex traders as the “cable” pair. The explanation comes from the fact that the two most important financial centers in the world, New York and London, were connected for the first time via a cable laid down on the bottom of the Atlantic Ocean.
Fast forward to the current days, and London and New York are still the biggest financial centers in the world. In trading, this is viewed by the volatility in the Forex market during the London and the New York sessions.
To be even more precise, London is the world’s powerhouse in financial trading, with New York coming in a close second.
Higher Volatility than Other Currency Pairs
The GBPUSD has a higher volatility than other currency pairs. As a matter of fact, all the GBP pairs have higher volatility, as a result of the large flows between the two economies.
It is no secret anymore that the United States and the United Kingdom enjoyed a close relationship for ages, with the ties likely to tighten even more now that Brexit negotiations are close to an end.
For a Forex broker, the GBPUSD is one of the most popular trading assets. In the United Kingdom only, trading is prevalent, and the GBPUSD one of the trading assets to focus on.
Proactive Central Banks
The two central banks, the Federal Reserve of the United States and the Bank of England are known to be one of the two most prominent banks in the world. They both target inflation around the two percent level, and so the CPI (Consumer Price Index) is a significant driver in the GBPUSD pair’s volatility.
When trading this pair, traders try to interpret what the two central banks will do with the interest rate level. Changes in the monetary policy matter a lot for the value of a currency, so traders try to position for the releases that point out to possible changes.
Relative Tight Spreads
The pair has one of the tightest spreads in Forex trading, but wider than the EURUSD, for instance. It is no secret that the EURUSD pair has the tightest spreads on any Forex broker, but the GBPUSD follows up closely.
What traders value the most on the GBPUSD pair is the volatility, which is higher than the EURUSD’s one, and this brings up a lot of trading opportunities.
In the end, the GBPUSD is a currency pair that reflects the economic differences between two of the biggest economies in the world. Moreover, it shows a battle between the old and the new world’s reserve currencies.
A comprehensive Forex education course covers the fact that the British Pound was the world’s reserve currency before the Bretton Woods agreement. After the 1940’s new financial order, the USD became the de facto reserve currency, with many sovereign nations choosing to keep plenty of their reserves in American Dollars, thus creating a constant demand for it.
To some extent, the two hegemonic powerhouses still compete, and the two currencies are the ones that reflect their strengths and weaknesses. After the Brexit completion, the flows into the GBPUSD pair should be even stronger than before, giving traders plenty of ammunition for market speculation.