The GBP/USD currency pair remains to be one of the most popular currency pairs on the forex market. The Great Britain Pound and the United States Dollars are the most observed and volatile currencies on the forex market. That presents very interesting dynamics when it comes to trading the GBP/USD. Also, have in mind that the UK, and the US have arguably the largest trade volumes in the world. That means that GBP and USD are the two most exchanged currencies in the world.
The GBP/USD is a risky currency pair to trade with, but it also presents some of the best opportunities of making a profit. The question is, how do you make a profit trading with the GBP/USD? What are the best strategies to use while trading the GBP/USD? We do not purport to have the blueprint to profitable trading with the GBP/USD, but we can certainly point you in the right direction.
Techniques of Trading the GBP/USD
There are those basic factors that make any currency move in a certain direction. For instance, it goes without saying that you need to keep an eye the movements of the economy in the economies of the two countries. Also, it is important that you know all the normal trading strategies that you’d use to analyze markets and make predictions are relevant to all currency pairs.
That being said, each currency pair has some unique aspects that you need to keep an eye on. For the GBP/USD currency pair, they are quite straightforward since it is a major currency pair. We’ve listed and explained them in brief below.
Announcements and Decisions by the Bank of England and the Federal Reserve Bank.
The Bank of England has the mandate to make the monetary policy and determining the interest rates of the country, and the Federal Reserve Bank has the same mandate in the US. These two banks often make announcements about interest rates and monetary policy. They do that in the interest of protecting the value of their currency. That means that every time they make a decision about these aspects, it is because the currency has been moving in a particular direction, and they hope to strengthen it in one way or the other.
The announcements therefore cause seismic movements with the GBP/USD market. You have to understand how these decisions affect the performance of the country’s currency, so that you are able to predict how the currency is likely to behave when certain decisions are made. For the avoidance of doubt, we should mention that when interest rates rise, they cause the value of the respective currency to rise as well.
Business Report and Economic Data
Different institutions within the UK and Us release economic data and business reports periodically. Whenever these reports come out, they are an indicator of how the economy of that country is performing, and in extension the currency. They can therefore cause the GBP/USD to move in a certain direction. They can also give you a pretty solid idea of what you should expect from the currency in coming times. Such reports include, retails sales reports, inflation reports, employment figures, etc.
Governance and Social Political Happenings
Governance issues and politics usually have a significant effect on the economy, and the currency by extension. Any happening in the political scene in either UK or US is most likely going to have a certain effect on the GBP/USD currency pair. It is important that you keep an eye on the social-political scene, for you to be able to predict how the currency might be affected.
Take for instance, after the Brexit vote, the GBP lost its value, and fell significantly against the USD. Other politics-related activities such as social activism and protests are likely to affect the economy if they go on for long, and consequently the value of the currency.
What is the Best Time to Trade the GBP/USD?
Any currency pair is best traded when both currencies have a high volume of trading. As such, the GBP/USD is best traded when the LSE and the NYSE are active. At this moment, huge volumes of the currency are being exchanged. This present good leverage, but it also comes with considerable risk levels. The best time to trade the GBP/USD is between 0600 and 1600 GMT.