Beginner's Guide to Trading GBP/USD: Everything You Need to Know About the Pound Sterling

2025-12-25 02:00:36

What is the Pound Sterling (GBP)?

GBP stands for Great British Pound, the official currency of the United Kingdom and its 9 overseas territories. The symbol (£) represents the main unit of sterling. One pound equals 100 pence.

The GBP currency is highly significant in the global market, ranking as the 4th most traded currency in the Forex market and the 3rd largest reserve currency in the world. Additionally, GBP is the oldest currency still in active circulation today.

History of the Pound Sterling

Around 1320, the ancestors of England created a silver coin weighing 1 pound. A total of 240 silver coins were minted from this weight. Because each coin weighed 1 pound, it was called “pounds of sterlings,” which later was abbreviated to “pound sterling.”

The prominence of GBP comes from its stability and value in the global market, influenced by economic indicators and geopolitical events of the United Kingdom.

GBPUSD Pair: Why Is It Among the Top

The GBP/USD pair, also known as “Cable,” is one of the most traded currency pairs, ranking 3rd among the most popular instruments in the exchange market after EUR/USD and USD/JPY.

Reasons traders prefer this pair:

Both the UK and the US are among the strongest and longest-standing economies in the world.
Both countries have high stability and security.
Both currencies are highly liquid and exhibit enough volatility to create profit opportunities.

Approximately 15% of all Forex transactions involve trading GBPUSD.

Major Events Affecting GBP

Brexit: Separation from the European Union

In 2016, a referendum was held for the UK to leave the European Union, known as (British Exit or Brexit), which was a major turning point impacting the pound.

Within just one year after the referendum, GBP dropped about 17% against other currencies. From 2016 to the lowest point in 2020, GBP/USD fell by 30%.

Pound Crisis 2022

The year 2022 was one of the most severe crises in GBP history, with its value dropping to just 1 pound = 1 dollar due to:

Russia-Ukraine War: Causing energy prices to soar, heavily impacting the UK.
Challenging Monetary Policy: When Prime Minister Liz Truss took office in September 2022, she announced an economic stimulus (The mini-budget), which cut taxes without clear revenue sources. This policy raised concerns and could lead to higher inflation.
Dollar Strengthening: During the same period, the US dollar appreciated due to rising interest rates, further weakening GBP.

Drivers of GBPUSD Price

1. Central Bank Policies

Bank of England (Bank of England - BOE) plays a key role in supporting GBP. When interest rates rise, the pound tends to strengthen, and vice versa.

2. Inflation (Inflation)

High inflation indicates a loss of currency value and often leads to higher interest rates. This indicator directly influences currency movements.

3. Employment Rate

High employment figures suggest a strong labor market and a thriving economy. Conversely, high unemployment indicates economic weakness.

4. Trade Balance (Trade Balance)

The trade balance measures the difference between exports and imports. A strong trade surplus can support GBP.

5. GDP Indicators

Quarterly Gross Domestic Product (Gross Domestic Product) measures the overall economic performance. This indicator reflects the strength of the UK economy.

6. Real Estate Market Data

Housing prices and real estate indicators are important signals of consumer confidence.

How to Trade GBPUSD

Understand Buying (Buy) and Selling (Sell)

The advantage of trading currency pairs via CFD (Contract for Difference) is that you can profit from both rising and falling markets.

Example of Buying: If you believe the UK economy will strengthen more than the US in the coming months, you buy GBPUSD at 1.4000 and buy 10,000 GBP with $14,000. If the exchange rate rises to 1.4500, you can sell at $14,500, making a profit of $500.

Example of Selling: Conversely, if you believe the dollar will strengthen, you sell (Sell) GBPUSD at 1.4000, receiving $14,000. If the exchange rate drops to 1.3500, you buy back 10,000 GBP at $13,500, earning a profit of $500.

Best Times to Trade

The Forex market operates 24 hours, but volatility (volatility) varies throughout the day.

Main Trading Sessions:

European Market (GBP): 15:00-22:00
American Market (USD): 19:00-03:00

Peak Trading Hours: 19:00-22:00 (when both markets overlap), characterized by high volatility and trading volume. Ideal for traders seeking more volatility.

Current GBPUSD Trend Analysis

The current GBPUSD price is trending downward from higher levels, showing a bearish trend and testing several key support levels.

Technical analysis using SMA (Simple Moving Average) indicates the current trend remains downward. Major support levels are at 1.2540 and 1.2500, while buyers are struggling at resistance around 1.2700.

Current Influencing Factors

Market expectations regarding changes in US Federal Reserve policies heavily influence GBPUSD volatility. The US continues to face strong economic data, combined with geopolitical tensions, all of which support the dollar’s strength.

However, US inflation data and Fed officials’ statements will determine future market direction.

Reasons to Study GBPUSD

GBP is a currency with great trading opportunities for traders due to its high trading volume and the impact of UK economic changes on its value.

For beginners in the Forex market, it is recommended to start with the most popular pair, such as GBP/USD, which has abundant trading data and analysis.

Understanding the fundamental drivers of GBP, such as decisions by the Bank of England, employment data, inflation, and trade balance, will help you make better trading decisions.

Summary

Pound Sterling (GBP) is a key currency with high trading activity in the global Forex market. Its long history, stability, and suitable volatility make GBP a good choice for traders from beginners to professionals.

Trading GBPUSD requires understanding economic factors, monitoring key news, and using appropriate analysis tools. Additionally, risk management, having a clear trading plan, and continuous market education are essential for success.

Note: Trading involves risks; you may lose your entire investment. Study and understand the risks thoroughly before starting to trade with real money.

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