GBP/USD is the third most traded currency pair in the forex market. Here are some things to take note if you trade this currency.

trading gbpusd

Pound, also called Sterling or Pound Sterling, was the world's leading currency before US Dollar became the most used currency in global trade transactions. Although its influence has dwindled across the decades, it is still one of the major currencies following the UK's role as one of the world's financial trade centers.

GBP/USD, consequently, is the third most traded currency pair in the world, covering an average of 8.8% of global currency trade every day, and is moving at an average of around 160 pips each day.

To trade GBP/USD, you need to pay attention to these aspects:

  1. The UK's consumer sentiment and any developments that may influence it.
  2. High-impact news from the UK and the US
  3. Trade in the overlap session.
  4. Correlation with EUR/USD
  5. How to perform scalping strategy

To better understand each point above, let's get down to the explanation below.

 

GBP/USD Happy If Consumers Happy

When analyzing GBP/USD from the fundamental perspective, you will find that retail sales, housing, and employment reports are highly impactful. The key here is consumer spending. The UK's economic growth is partly driven by consumption, and the trade relationship with other influential countries relates closely to that particular factor. Hence, there goes the following principle:

Anything that benefits consumer spending in the UK may strengthen GBP, while anything that hurt consumer spending in the country may weaken it.

 

Influential News from the US and UK

As in any other currencies traded directly with US Dollar, economic reports from the US will influence GBP/USD as well. This is especially notable for Federal Reserve (the Fed) decisions. The UK's central bank, the Bank of England (BoE) has a relatively lower influence than the Fed. Nevertheless, you should also consider their decisions when trading this pair.

In this sense, here are some high-impact news you should note if you want to trade GBP/USD successfully:

From the US:

  • FOMC Meeting and the subsequent Fed's interest rate statement.
  • FOMC Meeting Minutes release (two weeks after the meeting).
  • The Fed/FOMC Chairperson speeches.
  • US GDP
  • US Nonfarm Payrolls report which also includes wages and unemployment rate.
  • US Retail Sales

From the UK:

  • MPC Meeting (BoE rate decision) and the subsequent BoE Governor Speech
  • MPC Meeting Minutes publication
  • UK GDP
  • UK Unemployment Reports (Claimant Count Change)
  • UK Housing Prices (Housing Prices Index)

Aside from those, it will also be useful to note commodities prices as US Dollar is quite sensitive towards changes in commodities prices, particularly oil and gold.

GBP/USD is also often influenced by geopolitical matters such as referendums and elections. The UK is rarely holding referendums, but when they do, it is on highly influential topics, such as the Scottish Independence and their exit from the EU (Brexit).

 

The Best Time to Trade GBP/USD

The United States and the United Kingdom have at least two similarities: both rely heavily on trade and are the world's financial trade centers.

In the forex market, it goes so far as the fact that London and New York sessions are the two busiest markets every day. These circumstances boost GBP/USD volatility, particularly during London and New York trading sessions (3-10 AM EST).

As such, the best time to trade GBP/USD is the overlap session between Europe and US trading hours, although you can technically trade the pair anytime from the market opening on Monday to the market closing on Friday (24/5).

 

Correlation with EUR/USD

The GBP/USD is often recognized as having a positive correlation with the EUR/USD pair. Therefore, many use the correlation to hedge both pairs. The strategy involves opening positions in GBP/USD and EUR/USD at the same time.

If the hedging strategy is applied to offset the losses, traders tend to trade GBP/USD and EUR/USD oppositely. But, if the hedging's purpose is to optimize the potential profit, traders would trade GBP/USD and EUR/USD in the same direction.

Here's a chart that shows the positive dynamic between GBP/USD and EUR/USD on a daily chart:

GBP/USD correlation with EUR/USD

 

Use for Scalping

The GBP/USD is famous as one of the most volatile trades in the financial market. It is not advisable for beginner traders to trade this currency, as the price tends to move so fast it could give us whiplashes. In a few minutes, the price could move 100 points or more. Even more so when there are high-impact news releases.

Despite the notion, those conditions are actually favorable for experienced scalpers. By targeting to exit in just a few hours or even minutes, scalpers could earn a lot of profits from GBP/USD price movement.

If you're interested to learn how scalping works, check out The Secrets of Successful Scalping Strategy.