The GBP /USD currency pair is one of the favorites among professional and new traders. The pair, also known as Cable, is characterized by high liquidity and can be traded using a variety of investment instruments.
GBP/USD Binary Options Trading
GBP stands for Great Britain Pound (also known as the British pound sterling) while the USD stands for the United States Dollar. In the GBP/USD currency pair, the GBP is the base currency while the U.S. dollar is the quote currency. The currency pair tells you the amount of dollars needed to buy one pound.
Why trade GBP/USD Currency Pair
Both the pound and the dollar hold a significant place in the global financial markets. Many countries in the world peg their currency on the dollar or the pound. This makes the GBP/USD currency pair very popular among forex investors.
The currency pair is arguably one of the most volatile. Although the high volatility makes the GBP/USD prone to false alarms, traders are attracted by this same volatility and unpredictability. In many ways, there are plenty of opportunities for gain even though volatility increases risks.
Ease of trade
The British pound uses floating rates. This offers traders an opportunity to trade the currency pair offshore with limited obstacles.
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Type of available binary options for GBP/USD
Basic Call/Put options: Predict if the exchange rate for GBP/USD will move up or down before the expiry time.
Touch options: Predict whether the exchange rate for GBP/USD will touch the given strike price before the expiration time.
In/Out: Predict whether the exchange rate for GBP/USD will stay within a range of two strike prices.
Possible signals for GBP/USD
Since April 2015, a strong dollar has seen a weakening of the pound. The Greek debt crisis has also seen traders seek a safe haven in the dollar with investors avoiding the sterling pound. Although the GBP/USD has been on an upward trend, the Greek crisis could cause a sell off bringing the support to the $1.5550 region and resistance to the region of $1.5770.
On June 29, 2015, the sterling maintained its strength against the US dollar and Euro following growing expectations that the Bank of England (BoE) will increase interest rates.
On June 25, 2015, the sterling maintained its strength at 1.5767 against the dollar in spite of strong economic data coming from the US showing an increase in personal spending and consumption. Interest rate hikes are expected this September.
Factors Influencing the GBP/USD Exchange RateEconomic performance- The economic performance in the UK and US affects the strength of the pound and dollar. When the U.S. economy outperforms the UK economy, the dollar gains against the pound i.e. it becomes stronger. The pound becomes stronger than the dollar when the UK economy performs better than that of the U.S.
Interest rates- The Federal Reserve and the Bank of England are responsible for all decisions concerning interest rates in the US and UK respectively. The difference in interest rates set by both agencies will affect the value of the dollar and pound. When the BoE adjusts the interest rates, this could have an impact on the pound. The same is true for the dollar when the Fed intervenes to increase or lower interest rates.
Inflation- Inflation affects a currency’s price stability. The Treasuries in the US and UK are in charge of setting inflation targets and working with the BoE and Fed to establish monetary policies. The actions of the Treasuries, Fed and BoE could increase or lower the value of the currency.
Gilts- In the UK, government bonds are also known as gilts securities and these have a great impact on the GBP/USD currency. The difference between the ten-year treasury note in the US and ten-year gilt in the UK affects the exchange rate for the currency pair. It is also important to look out for the difference between UK ten-year gilts and German bonds because this difference impacts the exchange rate of the EUR/GBP. This in turn influences the GBP/USD rate of exchange.