Currency Fundamentals

Currency – British Pound (GBP)

The United Kingdom stands out from the crowd in Europe. While a member of the European Union, it doesn't participate in the Eurozone. This means the UK has its own currency, the British Pound, also known as Sterling (GBP).

• Economic Powerhouse: Despite not using the Euro, the UK boasts the third largest economy in Europe, behind Germany and France.

• Financial Hub: London is a major global financial center, making the GBP a highly liquid currency. This translates to ease of buying and selling GBP in the forex market.

• A Popular Pair: The GBP/USD (British Pound/US Dollar) is one of the most actively traded currency pairs globally. This reflects the GBP's significance in the forex market.

• Cross Currency Influence: The GBP is also prominent in "crosses," which are currency pairs that don't involve the USD. This highlights its overall trading activity.

The British Pound's unique position as a major currency outside the Eurozone creates interesting dynamics in the forex market. Understanding its strengths and its relationship with the Euro can be a valuable asset for forex traders.

• A Key Trading Partner: The European Union remains the UK's largest trading partner. This close economic relationship means forex traders closely monitor the EUR/GBP (Euro/British Pound) pair.

• Insights from the Euro: Fluctuations in the EUR/GBP can provide valuable clues about the fundamental direction of the GBP. By analyzing both the GBP and the Euro, traders can gain a more comprehensive understanding of potential GBP movements.

Most Important Economic Indicators to Follow

• Purchasing Managers Index (PMI) : It should also be taken into account that the UK economy is a service based economy, so any changes in service sector PMI data (Purchasing Managers Index) has an effect on the value of the currency.

• Gross Domestic Product (GDP) : A good indication of the state of the UK economy, showing whether there is growth or contraction.

• Unemployment Rate : A good indicator of future spending in the economy, which usually helps an economy grow.

• Consumer Price Index (CPI) : The change in prices of consumer goods is a good measure of inflation which the Bank of England will closely watch in order to set monetary policy.

• Bank of England Policy Announcements : The Bank of England (BOE) sets fiscal and monetary policy in the UK. If the central bank raises the benchmark interest rate, this will tend to lift the British pound. On the other hand, if rates are cut, this will usually weaken the pound.