In the wake of the much looked forward to Scottish Referendum, the GBP/USD corrective rebound is over and a marked downtrend is expected. This will further intensify with the political uncertainty existing in the UK. Other than the political scenario, there are other factors that can affect the GBP/USD cable.
What is GBP/USD cable?
In forex trading, GBP/USD indicates the currency pair or cross of US dollar and British pound. The currency pair indicates the number of British pounds you need to purchase one U.S dollar. The British pound is the base currency and the dollar serves as quote currency here. Trading with the GBP/USD currency pair is also called as trading the Cable. The GBP/USD pair is usually related to in terms of one British pound per X U.S dollars. If 1.50 is the level the pair is trading at, it means you need 1.5 US dollars to buy a British pound.
Factors Influencing GBP/USD Cable
The factors that affect the value of individual currencies in relation to various other currencies also affect the currency pair. When comparing the two currencies, the control factor is calculated by the difference in interest rate between the Federal Reserve (Fed) and Bank of England (BoE). If the open market activities of Federal Reserve increase the US dollar value, the GBP/USD value can decline. Due to the positive relation between Swiss franc, Euro, and British pound, the GBP/USD has a positive trend with EURO/USD, while a negative one with USD/CHF.
Bank of England
Though BoE has operational independence as far as monetary policy creation is concerned, it is still reliant on having to meet the treasury set inflation target.
Changes in Interest Rates
The base or minimum lending rate is the key interest rate of the Central Bank, which determines the change in the monetary policy. The alteration in monetary policy is also influenced by the difference in dealing rates used by the BoE to buy government bills from discount houses during its regular market operations.
The government bonds or gilt edged securities difference when compared to US Treasury note for a ten year period influence the exchange rate.
Euro Sterling Deposit Rate
The interest rate on the three month sterling denominated deposits present in banks outside the United Kingdom is a valuable benchmark that affects the currency pair value.
The cross rate effect, FTSE-100, economic changes in UK, treasury influence, and EMU membership also control the GBP/USD cable.
How traders can benefit
The high liquidity value of GBP/USD allows traders to capitalize on the variations and price movements 24/5 with expert trading sites like Primetrade. The GBP/USD is a key currency pair that is traded with leverage, since it is a reliable pair in spite of having huge price movements. This is mainly due to the various patterns and market trends that it experiences.
When you use PrimeTrade, you can get the full benefits of trading with GBP/USD pair, which makes up nearly 9% of the total trading volume per day and it is also the third most traded currency pair. The best hour to trade the pair is during the New York trading time, which has the maximum volume trade.