What is Cable in Forex & How is it Used?
The cable is highly liquid because it is traded by large financial institutions, central banks, and retail traders around the world. This means that traders can enter and exit positions quickly and easily, without worrying about slippage or significant price movements. While Truss hopes that the tax cuts will increase economic productivity, investors and forex traders were concerned that the move would add to the U.K.’s debt and exacerbate already-high levels of inflation. These uncertainties coincided with strength in the dollar driven by aggressive interest rate hikes by the U.S. As a result, the GBP/USD rate tumbled to an all-time low of around 1.03 on Sept. 26, 2022, before posting a slight recovery to roughly 1.06 then. This term cable supposedly derives from the advent of the telegraph in the mid-19th century.
- The 10-year US Treasury bond yield stays in the red below 3.7% as markets reassess the odds of a large Fed rate cut, helping XAU/USD push higher.
- The GBP/USD tends to have a negative correlation with the USD/CHF and a positive correlation to the EUR/USD currency pairs.
- While 60% of the volume of foreign exchange are made via London, the GBP is not the most traded currency but is quite popular due to the good reputation of the UK monetary policy and a high interest rate.
- By the early part of the 21st century, the dollar was the world’s leading reserve currency, followed by the euro.
How Can I Trade GBP vs. USD?
The forex, or foreign exchange, is now a global marketplace for the exchange of nearly all global currencies. The first Transatlantic Cable was laid under the Atlantic Ocean in 1858, but it failed after only about a month of fitful service. The first truly successful cable across the Atlantic was completed in July 1866, reliably transmitting currency prices between the London and New York City Exchanges. The first such exchange rate to be published in The Times appeared in their issue of 10 August 1866. The British pound is normally referred to by its standard abbreviation, GBP, as the dollar is referred to as USD. The pound may be called the cable only when it is paired with the USD, not with any other currency.
For example, if you were converting 800 British pounds into U.S. dollars on June 17, 2023, you would multiply £800 x $1.28 (the exchange rate for the day) to get $1,024. To convert from dollars to pounds, you would simply divide by the exchange rate, rather than multiply. It is affected by factors that influence the value of the British pound and/or the U.S. dollar in relation to each other and other currencies.
The divergent Fed-BoJ policy expectations continue to weigh heavily on the pair. Investors look to Fed and BoJ meetings next week for a fresh directional impetus. In 2023, the rate climbed up again, whereby from March 2023 to June 2023 it had a steady increase, sitting at approximately $1.28 by the middle of June. When the GBP/USD rate is falling, that means it costs less USD to buy one GBP, and therefore the GBP is declining in value relative to the USD. He is an expert at elucidating complex financial topics in clear, concise language.
Similarly, if a trader wants to trade the AUD/USD currency pair, trade99 review they may look at the GBP/USD exchange rate to get a sense of the overall strength of the US dollar. GBP/USD refers to the currency pair of the U.S. dollar and the British pound, which is among the most widely traded in the world. The current value of the GBP/USD pair shows how many U.S. dollars are needed to purchase one British pound. Many factors affect the GBP/USD rate, including economic indicators and actions by the central banks in both countries to boost or devalue their currency.
Why Is the GBP/USD Exchange Rate Called the Cable?
Ethereum hovers around $2,300 as WazirX exchange exploiter moves 5,000 Ether to a new wallet address and a crypto mixer. Thomas J Catalano is a CFP and Registered Investment Adviser with the state of South Carolina, where he launched his own financial advisory firm in 2018. Thomas’ experience gives him expertise in a variety of areas including investments, retirement, insurance, and financial planning. A general election is expected next year in the US and the UK, which could fuel intense volatility around the GBP/USD pair. Amidst looming inflation and growth concerns, the political developments on both sides of the Atlantic are likely to be closely followed. USD/JPY remains under some selling pressure on Friday and hits a fresh YTD low.
MOST INFLUENTIAL ORGANIZATIONS FOR GBP/USD
In foreign exchange, the base currency is the one against which another currency is compared. When the pound was the world’s dominant currency, it was also the base currency for trading, so a price quote indicated the amount of currency X that needed to be exchanged for the pound. The history of the word cable goes back to the times when the pound sterling was the leading currency in the world. By leading currency, I mean that currency that most nations used to hold as the reserve currency. You can trade GBP and USD, along with any other currency pairing, through a forex broker.
Changes in the Cable in Forex
The currency that is used as the reference is called the counter currency, quote currency, or currency[1] and the currency that is quoted in relation is called the base currency or transaction currency. One of the reasons why the cable is so heavily traded is because it is a highly liquid pair. Liquidity refers to the ease with which a currency pair can be bought or sold without affecting its price.
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The technology for forex trading and the relative global importance of the currencies has shifted, but traders still use the term “cable” to refer specifically to the GBP/USD currency pair. They involve the currencies euro, US dollar, Japanese yen, pound sterling, Australian dollar, Canadian dollar, and the Swiss franc. Since that time, plus500 review the exchange rate between the British pound and the U.S. dollar has been referred to as the cable. The British pound/U.S.dollar currency pair continues to be one of the most widely-traded currency pairs in the world. Another reason why the cable is significant in the forex market is because it is often used as a benchmark for other currency pairs. For example, if a trader wants to buy the EUR/GBP currency pair, they may look at the GBP/USD exchange rate to determine the best time to enter the trade.
WTI is forming short-term bullish reversal patterns on the daily and weekly charts. In the 21st century, the pound has continued to trend downward, ranging from a high of $2.08 to a present value just above $1.08. Economic uncertainties surrounding the coronavirus pandemic, combined with the loss of the European market, have overall weakened the prospects for the British economy. From the last half of 2008 to early 2009, the British pound fell from $2.10 to below $1.40, losing over a third of its value. This is likely because investors considered the dollar a “safe haven” against market volatility. The GBP/USD had another sharp decline in June 2016, when Britain voted to leave the European Union.
The exchange rate between the British pound and the US dollar was one of the most important rates for businesses and investors on both sides of the Atlantic. At the time, the exchange rate was transmitted across the Atlantic via the telegraph cable, and traders would wait for the latest exchange rates to be “cabled” across the ocean. The term “cable” became synonymous with the GBP/USD exchange rate, and it has been used ever since.
