13.06.202213:26 Forex Analysis & Reviews: GBP/USD: Features and recommendations

Long-term review

Exchange Rates 13.06.2022 analysis

GBP/USD refers to reverse currency pairs and indicates how many units of dollars (US national currency) you need to pay for one pound sterling (UK national currency). The base currency in the GBP/USD pair is the pound sterling. This means that the commodity in the GBP/USD pair is the pound, and the US dollar is the second currency in the pair, which buys the base currency (pound sterling). The pound, like the dollar, is included in the IMF basket, consisting of five major world reserve currencies (in descending order): the US dollar (about 41%), the euro, the yuan, the yen, and the pound sterling (about 8%). The GBP/USD pair belongs to the category of "major" currency pairs along with the USD/JPY, EUR/USD, AUD/USD, USD/CHF, USD/CAD, NZD/USD currency pairs.

At the moment (at the beginning of June 2022), the GBP/USD pair is trading on the forex market near the 1.2210 mark. This means that for one pound they give 1.2210 US dollars.

Features of trading the GBP/USD pair

1. According to various estimates, the GBP/USD pair accounts for approximately 10–15% of the total trading volume on the foreign exchange market. Both the dollar and the pound are highly liquid currencies. Almost at any moment there will be both buyers and sellers for the dollar or the pound. The UK and the US have the strongest economies in the world. The United States is in first place in the world in terms of GDP (approximately 25% of world GDP). The UK share is about 4%. At the same time, the UK GDP growth rate remains one of the highest in the world in annual terms (2–3%). Great Britain is one of the world's financial centers, carrying out 10% of the world's exports of services (banking, insurance, brokerage, advisory, software).

2. The GBP/USD pair is actively traded throughout the trading day. The largest peak of trading activity with the pound and the GBP/USD pair and the largest trading volumes occur during the European session, when the London Stock Exchange opens (07:00 – 16:00 GMT), and the American session (12:00 – 21:00 GMT). Moreover, the time between the beginning of the session in New York (12:00) and the end of the trading session in London (16:00) will be the most active, since the two trading sessions overlap at this time, and European and US traders participate in trading.

3. A surge in trading volatility in the GBP/USD pair occurs during the publication of important macroeconomic indicators for the US and the UK. The following macroeconomic factors and indicators give the greatest volatility to the GBP/USD pair:

  • Decisions by the Fed and the Bank of England regarding monetary policy in the US or the UK,
  • Speeches by the heads of the Fed and the Bank of England (currently Jerome Powell and Andrew Bailey, respectively),
  • Publication of minutes from the latest meetings of the Fed and the Bank of England on monetary policy issues
  • Data from the labor market of the USA, Great Britain,
  • Data on the GDP of the USA, Great Britain,
  • Publication of inflationary indicators of the USA, Great Britain.

Strong macroeconomic indicators in the US or the UK lead to the strengthening of the dollar or the pound, respectively, as they contribute to the growth of "tough sentiment" of the central banks of the United States or Great Britain regarding the increase in the interest rate. And this is a positive factor for the national currency, which leads to an increase in its value.

4. Important political events in the USA, Great Britain, the Eurozone, and the world also affect the quotes of currencies, and above all, the dollar, euro, and pound. The UK's largest trade and economic partners remain the United States and the European Union, from which the UK left, according to the referendum held in the UK in the summer of 2016, known as Brexit. After the referendum, the pound "fell better" in the foreign exchange market by more than 20%. At the same time, the index of the London Stock Exchange FTSE100 rose by 15%. And the Bank of England lowered the interest rate in August 2016 to the level of 0.25%, and to the level of 0.1% in March 2020, but already due to the support of the British economy due to the detrimental impact of the coronavirus pandemic, which is the lowest value in last 300 years. However, at the moment, the Fed and the Bank of England began a cycle of tightening their monetary policies. The most important among other reasons is the accelerated inflation in the US and the UK, which has reached its highest levels in several decades. Under normal economic conditions, an increase in the interest rate leads, as a rule, to the strengthening of the national currency.

5. The sale of assets in the stock markets of the US or the UK leads, as a rule, to an increase in the value of the dollar or pound, respectively. The sale of US or UK government bonds is accompanied by an increase in their yield and the value of the dollar or pound, respectively, and vice versa. The growth of the stock market in the US or the UK, as a rule, is accompanied by a decrease in the value of the dollar or pound.6. In relation to other "major" currency pairs, the GBP/USD pair moves quite independently. Only with pairs EUR/USD, NZD/USD there is approximately 50% correlation.

7. The GBP/USD pair is considered one of the most volatile in the foreign exchange market. The intraday volatility of the GBP/USD pair fluctuates in different periods of the year. On average, it is 100–150 points (in a 4-digit quote), but can exceed 300 points during periods of important news of a political or economic nature.

8. The GBP/USD pair also has a sufficient degree of inertia. In the event of a breakdown of the level, the pair actively moves towards the breakdown for quite a long time. At the same time, GBP/USD is one of the most popular pairs in trading and is suitable for both medium and long-term strategies, such as level breakouts, and short-term intraday trading strategies.

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