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The forex symbol GBP/USD indicates how much the British Pound (abbreviated as GBP) is worth in relation to the US Dollar (abbreviated as USD). This article provides traders information on how much USD is needed to buy one GBP. Forex traders call an exchange of this pair as “trading the cable,” a nod to how New York and London used to transmit trading information.

The GBP/USD pair is among the oldest currency pairs traded in the world. It is also among the most popular pairs to trade and is considered a major forex pair.

If you’re considering trading this pair, read on for a quick dive into the history of these currencies, their dynamics, and how you can trade this pair.

If you want to read more articles about our pairs, check out our posts on: USD/JPY and EUR/CHF.

Currency background

The British Pound (GBP)

GBP is the official currency of the United Kingdom and its territories. Its history can be traced back to continental Europe. With over 1,000 years of history, it is one of the oldest, if not the oldest, currency still in use. In 1694, the Bank of England was established, and banknotes entered circulation shortly after.

The GBP’s importance goes beyond the UK and its territories. It used to be the dominant international currency before USD took over in the 20th century. However, it is still among the most widely used currencies for financial transactions worldwide, along with the USD and the Euro (EUR). Further, as of 2021, the GBP comprised 5% of official foreign reserves (i.e., share of currency reserves held by central banks).

The US Dollar (USD)

USD is the official currency of the United States, dating back to the 18th century. In 1785, the US adopted the dollar sign, which is now, perhaps, the most recognizable currency symbol in the world.

The USD plays a major role in the global economy, dominating international finance. It is the most active currency for international payments. It has also been the top international reserve currency since World War II, with an over 50% share of global reserves. In forex markets, almost 90% of all transactions involve USD.

The Plaza Accord

No background of these two currencies would be complete without mentioning the historic Plaza Accord.

In 1985, the US, UK, France, Germany, and Japan—then known as the G-5—agreed to jointly intervene in the currency markets to correct trade imbalances. The devaluation of USD was meant to reduce the increasing US trade deficits.

In a couple of years that followed the agreement, the USD declined in value by about 50%, while GBP and the other currencies appreciated by about 50%.

Factors you need to consider in trading GBP/USD

The GBP/USD pair is among the most liquid in the forex market, with smooth price movements as there’s enough volume of trade in the market.

Various factors move the prices of currency pairs in the forex market. For most currency pairs, prices are affected by economic trends and geopolitical circumstances, both locally and globally.

Here are some factors that drive the GBP/USD dynamics:

Economy

Both the US and the UK are among the largest economies in the world.

Due to its size and role in the global economy, the economic situation and policies in the US affect many economies and markets worldwide. In general, the GBP/USD rises when the UK economy grows more than US economy.

If you’re trading US-based pairs, you can keep up to date with US economy updates through government data releases and economic reports or Fusion's economic calendar, which includes data such as GDP growth, interest rate decisions and balance of trade.

Trade balance

The US is one of the three largest players in global trade, along with the European Union and China. The US is among UK’s major trading partners, accounting for about 10% of UK imports and receiving over 15% of UK goods exports.

The trade balance situation generates some volatility for GBP/USD. GBP/USD rises when current account balance (i.e., the balance of trade between the two countries) increases for the UK.

Central Bank policies

The Federal Reserve (Fed) sets the monetary policy in the US, a key determinant of currency strength, with the aim of stabilizing US prices and maximizing employment. In the UK, the Bank of England (BoE) sets the interest rate to maintain low and stable inflation. It reviews rates every 6 weeks.

A rule of thumb here is that the pair rises when the BoE interest rates rise more than the Fed rates.

As the USD plays an important role in international markets, movements in interest rates set by the Fed have a critical impact on the movement of many currencies worldwide, including GBP. In 2022, steep rate increases have strengthened the US dollar, causing other currencies to dive as investors rush to USD.

Geopolitical conditions and global risks

Like other currency pairs, the GBP/USD is also driven by political uncertainties and global risks.

The GBP took a hit following the global recession in the late 2000s. In 2016, after the announcement of Brexit, the GBP dived to its lowest against the USD, as UK’s decision created uncertainties to how its trade prospects would pan out.

GBP/USD and GBP/EUR - 2014-2021

As USD is a global reserve currency, it serves as a haven at times of global uncertainties. During the height of the COVID-19 pandemic in 2020, the GBP/USD rate dropped by 12% as investors sold the GBP and rushed to the safer USD.

GBP/USD and GBP/EUR - 2007-2010

Conclusion

Is the GBP/USD pair worth going into?

The US and the UK are among the largest economies in the world, with both USD and GBP playing important roles in international finance. The two countries share strong economic relations.

In forex markets, almost 90% of all transactions involve the USD. Post-1980, the pair has been less volatile, with extreme movements stemming from major global and regional events such as the Brexit and the COVID-19 global situation. The pair is one of the most liquid in the market.

If you’re new to the forex market, trading with highly liquid currencies such as GBP/USD could benefit you. This is because many strategists recommend trading in these currency pairs while you’re still improving your grasp of forex trading. You're also in luck, in that, Fusion Markets is the lowest cost regulated broker on the market. Start trading today!  

The forex symbol EUR/CHF indicates how much the Euro (abbreviated as EUR) is worth in relation to the Swiss Franc (abbreviated as CHF), and how many Swiss Francs you need to buy one Euro. The pair is nicknamed “Euro-swissie” in the FX market.

As a cross-currency pair, EUR and CHF are traded directly, without the need to convert to a base currency first. This is also commonly known as currency pairs that do not involve the US Dollar (USD). The EUR/CHF currency pair is among the most popular cross-currencies in the forex market.

In this article we breakdown the history of these currencies, their dynamics, and how you can trade this pair. 

For more currency pair breakdowns, check out our USD/JPY Overview.

Currency background

The Euro (EUR)

As of 2022, 19 out of the 27 member countries of the European Union (EU) use EUR as their official currency.

Since its debut in 1999 and entry into circulation in 2002, EUR has become one of the most widely used currencies for financial transactions worldwide, often second only (or at times at par with) USD.

Owing to its credibility, EUR has also, until recently, been a relatively stable currency. This stability has allowed it to extend its importance well beyond the EU. Over 50 other countries and territories globally have adopted the EUR as currency or have pegged their currencies to EUR. Furthermore, it accounts for over 20% of global foreign exchange reserves, second only to USD.

The Swiss Franc (CHF)

CHF is the official currency of Switzerland, as well as of Liechtenstein. In contrast to EUR, CHF traces its origin over a century back to 1850.

CHF is among the top ten most traded currencies globally. It has long been considered a safe-haven currency, owing to the stability of the Swiss economy and its political neutrality. However, unlike EUR, no other country uses CHF as a peg for their own currency.

What to consider in trading EUR/CHF

Compared to most currency pairs in the market, EUR/CHF experiences fewer price movements. The trends are typically slower and more stable.

Several factors affect the prices of currency pairs in the forex market. For most currency pairs, price movements are mostly tied to economic and geopolitical circumstances, both locally and globally.

Here are some factors that drive EUR/CHF movements:

Economy

The EU, as a single market, is one of the largest economies in the world and one of the three most prominent players in global trade. It is Switzerland’s primary trading partner, with the EU accounting for over 60% of Swiss imports and receiving over 40% of Swiss exports. The economic situation in the Eurozone has a history of affecting the Swiss economy, such as in the 2010s.

If you’re trading EUR-based pairs, you can keep up to date with happenings in the EU economy through European Commission economic reports, including economic forecasts and reviews, as well as Fusion's Economic Calendar. The European Central Bank also publishes economic bulletins that provide insights on monetary policy, a key determinant of currency strength.

Swiss policies

The Swiss National Bank, which issues CHF, has traditionally been non-interventionist. Several of its moves, however, have impacted currency markets. In 2011, it pegged the CHF to EUR, in a move to help Swiss businesses to increase their profitability. A few years later, in 2015, it abandoned the peg, stunning investors, causing market turmoil, and leaving a profound impact on the EUR.

EUR/CHF 2011-2015 Weekly Time Frame

Global risks

Investors on the move to mitigate global economic risks are drawn to CHF due to its solid reputation for financial stability. In the aftermath of the global financial crisis in the late 2000s, widespread buying of CHF saw a 20% depreciation of EUR to CHF.

Geopolitical conditions

Investors also turn to CHF in times of political uncertainty in the EU, such as during the Greek sovereign debt crisis following the 2008 financial crisis. Demand for CHF had also soared during the Brexit negotiations, with investors using it as a hedge for protection against Brexit.

Movements in USD

A distinct advantage of EUR/CHF is its independence from USD. As they can be directly traded with each other, the pair isolates traders from USD-related volatilities. 

Conclusion 

The EU is one of the largest economies in the world, with EUR used in a majority of global transactions. The EU and Switzerland are not only geographically close, but also share strong economic ties, such as trade relations.

The EUR/CHF as a cross-currency pair experiences fewer price movements, with less volatile trends compared to other forex pairs. Both currencies are credible, with CHF long considered a safe-haven currency. Even during the COVID-19 global pandemic, investors have trusted CHF.

If you're looking to trade EUR/CHF, you'll be able to get ultra-tight spreads and $2.25 commissions per lot with Fusion Markets. Don't wait on the sidelines, be part of the action.

Or why we tend to rely heavily upon the first piece of information we receive.

Our minds can have an enormous impact on our trading and the returns that we generate from it. The way we think, act and behave when we trade or invest is at least as necessary if not more so than our trade selection, particularly in the kind of one-way markets that we have seen post the covid crash.  

A rising tide lifts all ships they say, and, in this case, the rising tide of the markets was provided by the printing presses of the major central banks along with the stimulus packages from national governments.

However, Central banks won't always be there to rescue us and we need to be aware of the kind of tricks that our brains can play on us if we are to avoid making the wrong trading decisions.

One of these tricks has a nautical moniker, anchoring, in which our brain subconsciously latches on to an idea, an assumption or a set of figures and uses that information in decision making, regardless of whether it's accurate or even relevant to the matter at hand.  

What's more, as humans, we tend to carry these impaired decision-making processes forward so that we end up using an inherently flawed system and often without realising it.

Behavioural psychologists have highlighted these tendencies in their experiments.  

In the case of anchoring American academic Professor Jay Edward Russo performed tests on 500 graduate students in which he asked them pairs of questions on history and general knowledge, but, unknown to the students, he had "salted "the questions with erroneous dates and figures.

The student's answers invariably reflected the incorrect numbers, which were varied across different groups of students within the experiment, highlighting a clear bias.

Professor Russo was effectively projecting those values into the student's subconscious, creating an anchor point.

When we become anchored to figures or a plan of action, we filter new information through that framework, which distorts our perception and decision making.  

This can even make us reluctant to change our plan or framework even if the situation calls for it.

There are few consequences if any when this happens in an experiment inside a university psychology department. Still, if it happens in the real world like in trading or investing, then there most certainly can be consequences.

Anchoring Bias has been described as one of the most robust effects in psychology, the fact that our decisions can be swayed by values not even relevant to the task (or trade) at hand.

Let's say we are negotiating the purchase of a house and I tell you it's worth $1,000,000, and I wouldn't sell it for less. You, as the willing buyer might have only had a price of $800,000 in your head. But all of a sudden, you now are anchored on my price. Not yours. The worst part is that the person who goes first in the negotiation tends to anchor the other party (remember this for the next salary negotiation you need to do with your boss!)

The studies even show that if you rolled a pair of two dice, gave the numbers (e.g. 10 and 19) to the study participant, that subconsciously, you would anchor them on these two numbers. Ask them what they would pay for a house, bottle of wine, or in one notorious study, the judges sentencing a criminal, these numbers are in and heavily influencing the participant's decisions whether they like it or not.

Anchoring always occurs in making our trading decisions, especially as it might help to explain our fixation with round numbers. E.g. EURUSD at 1.20. Gold at $2000/ounce. DJ30 - 30,000. Once we get hooked on the number, we always use it as a reference point in future, probably because it "feels right".  

Let's say in the past you might have successfully gone long EURUSD at 1.20 earlier in the year, and now whenever it comes back to that number, you will buy it again (the same thing happened to EURUSD at 1.10). You can't explain it, but you had past success with that number and you will gravitate towards it without understanding why.

Take a moment to consider some key support and resistance levels on your favourite instruments. Are they round numbers too? Why might that be? Could it be because people are anchored at Gold at $1900? And that every man and his dog has placed their buy orders at that level because it's "good value" or has spent time around that level in the past? Remember that the market is driven by sentiment and agreed upon narratives. Think what else could the crowd be anchored on that might be to your advantage knowing what you know now.

How do we avoid being anchored? 

Given that we don't completely understand the processes that cause anchoring to happen in the first place, we are unlikely to avoid it entirely.  

However, by being aware of its existence, we can revisit and retest our assumptions when making important decisions, to ensure that we are acting rationally and basing our decision on the situation at hand, not irrelevant inputs.

Perhaps the best way to avoid anchoring in trading is to treat every trade as an individual event and to judge a trading opportunity on its current merits. By doing this, you have a better chance to ignore any reference or prior interactions you have had with the instrument you are trading. It won't be easy to do at first, but it could prove to be a valuable discipline over time. As mentioned, this is crucial to comprehend for putting your stops and limits around key support and resistance levels.

Think about a time you have been fixated on a number. Was it buying a house? A pair of shoes? Trading? Now think whether that number could have been influenced by someone else, e.g. the seller, the shoe store etc.

Anchoring can certainly also play a part in other hidden biases and behaviours such as loss aversion (e.g. not wanting to close your open losing trade).

The next time that you are about to trade, take time to think about why you are fixated with that number for entering and exiting the trade, and how you reached the decision to pull the trigger. A few moments of reflection might make all the difference.

A wonderful client of ours named Jimmy from up north in Indonesia wanted to learn a little more information about the sentiment tools that we have on offer.  We love helping traders grow and your feedback so figured it deserved its own post.

Because the sentiment is based on advanced Natural Language Processing (NLP), an advanced form of Artificial Intelligence, we know it might seem daunting to look at on first glance, so hopefully, you find the below Q&A interesting.  

What is the sentiment chart telling me? Is there any significance to the “wave” itself?  

The wave line is the sentiment score. The wave effect was created to show that contrary to prices on the particular asset class, the sentiment is not a precise measure. It is more a proxy than anything else.  
 

What is the sentiment score? How is that calculated?  

The machine learning model creates a sentiment score by scouring all of the words in the sources selected (e.g. nouns, pronouns, adjectives) within the articles it scans each day. In a simplified way, it is the difference of the score of the positive words (e.g. good, very good, great) minus the score of the negative words (e.g. bad, very bad, awful) embedded within the article.  

The calculation is made on a 24h rolling window with a recalculation latency of 15 minutes.  

The usefulness of the current sentiment the score is relatively short term (1-3 weeks).  

What is the subjectivity score? How did it arrive at this number? What happens if it goes higher or lower?  

The subjectivity is calculated on the difference between the factual words and the emotional words embedded within an article. If there are a lot of words that fall into the “fear” lexicon for instance compared to factual observation, then the gauge will be more inclined towards subjectivity or irrationality. At 0% the gauge would tell you there is no irrationality from the crowd and any article published is based on factual elements. If the gauge is above 50% and close to 100%, it means the crowd is a bit irrational about the asset and the price of the asset is not a reflection of its fundamental value. This is a great tool to detect bubbles in asset classes like equities.  

What is the confidence index?  

The confidence index is a relative index. It looks at the history of the volume of news and will scan over a period of 24 hours. If the volume of news is greater than the average of news published over the last 7 days, it would give you an indication about the quality of the sentiment score and how much trust you should have on it. e.g. if the sentient score is very positive but the confidence is low, you should be sceptical of the sentiment. In summary, the more sources and the more information, the more accurate the AI will be in providing its level of confidence.