GBP/USD

About GBP/USD

The British pound U.S. dollar (GBP USD) is a currency pairing whereby the British pound and the U.S. dollar can be traded against each other. The GBP USD can be thought of as the pound versus the dollar – you short the pound and go long the dollar or short the dollar to go long the pound. The GBP USD is one of the three most traded currency pairs and is also one of the oldest. It was initially traded by undersea cable between the U.S. and Great Britain, so the nickname cable is often used for the pair. The GBP USD may also be written as GBP/USD.

About Poundsterling

The British pound sterling (GBP) is the official currency used in the United Kingdom. The pound sterling is considered to be one of the major currencies and is paired with all the other major currencies, including the U.S. dollar (USD), Japanese yen (JPY), Swiss franc (CHF), euro (EUR), Australian dollar (AUD) and Canadian dollar (CAD). It also acts as a base currency for many less commonly traded and exotic currencies.

The United Kingdom is one of the world’s largest economies. Although it is a member of the European Union (EU), the UK has chosen to keep the pound sterling as its currency. The economy of the UK is very similar to the U.S. in that services play a larger role than commodities.

The pound sterling had the unfortunate role of being the target currency of the greatest currency trade in history. On September 16, 1992, currency speculators lead by George Soros forced the British government to pull out of the European Exchange Rate Mechanism (ERM) – a precursor to the EU and euro. Soros made over $1 billion on the trade and went down in history as the man who broke the Bank of England.

About US Dollar

The USD is integral to world trade in that it belongs to the world’s largest economy and acts as the world reserve currency. Because of this unique situation, many of the standard economic rules do not seem to apply to the USD.

The U.S. government has had long periods of fiscal irresponsibility and yet the USD has not always suffered during inflationary times that would damage any other currency. This is because, as the world’s largest economy, the USD is considered a safe haven currency in times of global uncertainty. However, this rule doesn’t always hold, and the U.S. dollar does eventually pay for periods of prolonged inflation and trade deficits – it just seems to enjoy a much longer lag before any market reaction takes place.