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The forex symbol USD/BRL indicates the exchange rate value between the USD (US dollar) and the BRL (Brazilian Real)

Currency background

USD (US dollar)

The USD dollar is the United States of America’s official currency. Each dollar is made up of 100 cents. It is represented by US$ when differentiating it from other countries’ dollar currencies. However, they are more often just marked as $.

This currency has become the benchmark for other currencies because it is the most popularly used one. Even territories beyond the US have commonly used it as an unofficial currency.

Because it is often at the core of foreign-exchange trades, it has its own index – the USDX. It is regarded as the world’s most stable currency.

Brazilian Real (BRL)

The Brazilian Real (BRL) is Brazil’s official currency. Each Brazilian real is made up of 100 centavos. It is represented by the R$ symbol.

It was first used as the country’s official currency in July 1994. It replaced the cruzeiro real. The exchange ratio between the former and the current currencies are not 1:1, either. 1 real is equals to 2,750 cruzeiro real.

From 1994 to 1999, BRL was pegged to the USD as an attempt to maintain stability. As the largest Latin American economy, it is worth looking into. It is also the 9th largest in the world.

If you’re considering taking the USD/BRL pair, here are the things to consider:

Economic Conditions

Currency values depend on the economic conditions and public reception of their country’s stability.

Since the mid-twentieth century, the USD dollar has established itself as a powerhouse in the global economy. However, because it is a fiat currency, it is also affected by the United States’ economic outlook and activity.

Its strength may be good for the country itself. It can also be good for those who may be relying on its general strength to earn in foreign exchanges.

However, a powerful USD can be detrimental to countries relying on exports from the United States.

While the USD is obviously strong throughout, much can be said about Brazil’s economy as well. It is believed to be one of the strongest emerging economies due to its rich natural resources.

Its diversity in economy has spurred foreign investment to pour in. With an estimated $200 billion of direct investments, Brazil’s currency is doing great.

It wasn’t always the case. The currency faced several currency crises such as the Mexican currency one from 1994 to 1995, and the one with Asia and Russia in 1997 and 1999. Investors then didn’t want to have anything to do with the Brazilian real.

Supply and Demand

When the US exports more products, it triggers more demand for its currency because customers must change their money to dollars to be able to pay for the goods.

The US government and top American corporations may also issue bonds that can be purchased only with the US Dollar. Foreign investors must buy dollars to buy those financial instruments.

Because of the overall reliability and strength of the US dollar, a lot of investors will still buy the currency as a reserve.

Perception

Currencies depend on perception or market sentiment. For example, if people have been watching the news, finding out about a weakened US economy or increased unemployment, the tendency is to buy back their local currency. This will lower the value of the dollar.

The same goes with the BRL, but even worse since it is a less popular currency. While its economy is doing well and has it placed up there among emerging markets, political corruption could be its downfall.

Geopolitical Conditions and Global Risks

One of the factors that affect perception is geopolitical conditions. How are the politics in the country?

USD is a dominant global reserve. It may experience some lows, but it is always generally high in value. Recent events have this fiat currency on the rise, too. On the other hand, Brazil also started strong this year and has been pulling from Russian assets.

What can provide some volatility in the USD/BRL pair is Lula’s recent election as the President of Brazil.

How to trade USD/BRL

Now that you know the strength of the individual currencies, how do you trade the USD/BRL pair?

The value you get will depend on the exchange rate between the two.

While USD is a stable currency, Brazilian real is the currency of an emerging market. It means that Brazil’s GDP has been steadily growing from 2000. A similar trend is expected to continue.

You will earn a profit because an emerging market’s GDP tends to grow rapidly. However, you must be vigilant because it is also at risk of being negatively impacted by political instability and currency fluctuations. Weigh risks against rewards.

Pick the right time frame

Trade when the USD/BRL is at its busiest, and potentially at its most volatile. The 8:00 to 12:00 Eastern Time frame is also the time when USD details are more readily available.

It is when significant chunks of data have been released that a currency pair’s volatility increases. Be watchful at this time because you will have increased opportunities for profitable trades.

Conclusion

USD/BRL is useful if you want to diversify your foreign exchange portfolio. Your portfolio may see increased gains/losses when one of the fiat currencies in your portfolio is an emerging one.

Why?

Emerging currencies are more likely to display greater volatility. They have also been steadily rising since 2000. Though the previous formation is not a guarantee of future performance, the current strength of currencies like the Brazilian Real is reassuring.

Of course, you will be dealing with two currencies that can give you a lot of value. The USD is always strong. Meanwhile, BRL performs well because of the resources and commodities that Brazil can export. Exports can strengthen both currencies because they prompt investors to buy them.

The foreign exchange pair USD/CNH (or otherwise known as USD/CNY) is the trading ticker symbol for the powerful but volatile pair of the United States dollar and Chinese Renminbi. Chinese Renminbi is the official currency of the People’s Republic of China, but each individual unit of currency is called Yuan. These two are considered as “exotic” or volatile pairs, mainly because a major currency, USD, is paired with that of an emerging nation, CNH.

While considered volatile and generally treated with higher liquidity, the USD/CNH pair is the combination of the world’s two largest economies. The unique relationship between the two countries of the two currencies makes the combination both potent and fascinating.

CURRENCY BACKGROUND

United States Dollar

The United States Dollar is the official currency of the United States of America and several other countries. It is popularly known as the “greenback” due to the bills’ predominantly green color.

The Coinage Act of 1972 paved the way for the introduction of the US dollar. The fiscal policy of the United States is under the control and supervision of the Federal Reserve System, which serves as the nation’s central bank as well.

Chinese Yuan

The Renminbi is the official currency of the People’s Republic of China. The Yuan is the basic unit of the Renminbi, but it is also used to refer to the currency in general, especially in an international context.

In 1948, or one year before the establishment of the People’s Republic of China, the People’s Bank of China (PBOC) introduced the Renminbi. As the new government of China expanded its hold on its territories, it began to steadily issue the Renminbi so as to have a unified currency in the land. Since then, the Renminbi, or Yuan, has been in circulation and has been the official currency of China.

IMPLICATIONS OF USD/CNH CURRENCY PEGGING

The US and China have always had a love-hate relationship that greatly affects not only their trade relations but that of the world as well. The past decades saw a series of pegging and de-pegging between the two currencies. Here are a few key periods that saw the biggest impact and highlighted the importance of currency pegging.

1995-2005

The US Dollar is freely convertible into all currencies of developed economies. On the other hand, the Chinese government is managing the Chinese Yuan’s value. From 1995, Chinese Yuan was at a “hard currency peg” at 8.38 against the US Dollar. For a decade this seems to be the case, and for this reason, it received wide criticism, mainly from the US government. The expectation that there should be a movement in the currency exchange of Yuan (given that China’s economy saw big growth) was not seen. This move by China is seen to protect its interest as, by artificially keeping the value of the Yuan down, Chinese importers were given a competitive advantage: a lower Yuan exchange rate reflects a stronger Chinese currency because you would need fewer Yuan to purchase one US Dollar.

2005

July of 2005 saw a revaluation of the Yuan by the People’s Bank of China by 2.1 percent. PBOC likewise announced a shift to a “soft peg,” which will allow the Yuan to trade more freely within a certain managed exchange rate range. While some criticized the change for being too “insignificant,” many economists praised the move and saw it as the first step towards a more flexible currency exchange system.

2010 - present

Since 2010, China continued its efforts of reforming its exchange rate system by giving the buying and selling forces in the market a freer reign in determining the exchange rate.

IMPORTANT THINGS TO CONSIDER WHEN TRADING USD/CNH IN FOREX

Federal Reserve and People’s Bank of China

Federal Reserve

The Federal Reserve, or most commonly known as The Fed, is the United States’ central bank. It is responsible for the monetary policies of the nation and sets the interest rates of the dollar investments eight (8) times in any given year. The Fed provides direction to strengthen the US Dollar and in maintaining its fluidity and stability.

People’s Bank of China (PBOC)

PBOC is China’s central bank. It has the duty of implementing monetary policies – even unconventional ones – to ensure that CNY remains competitive and afloat. PBOC likewise sets a daily midpoint rate, which serves as a basis in trading Renminbi or Yuan within 2% in either direction.

Trade Wars

Being major players in the international trading arena, trade wars in the form of imposition of additional tariffs and sanctions greatly affects the values of the currencies. In the 2018-2019 US-China Trade standoff, when Trump imposed a series of sanctions against China’s products and exports, China retaliated by lowering the exchange rate value of CNY below its USD peg.

USD/CNH Weekly - Nov 2017-2018

CONCLUSION

Is the USD/CNH worth the risk for your investment?

As a volatile combination, is it worth the risk to invest in USD/CNH?

While it seems counterintuitive, the pair remains to be one of the most popular, given that the combination represents two of the most powerful economies in the world.

The US Dollar is the world’s primary reserve currency, and remains to be the most widely used currency when it comes to international transactions. The Chinese Yuan represents the continuous and rapidly rising economy of China, the world’s largest exporter. Their advantages when taken individually could be the pair’s strength when taken cumulatively.

The forex symbol GBP/USD indicates how much the British Pound (abbreviated as GBP) is worth in relation to the US Dollar (abbreviated as USD). This article provides traders information on how much USD is needed to buy one GBP. Forex traders call an exchange of this pair as “trading the cable,” a nod to how New York and London used to transmit trading information.

The GBP/USD pair is among the oldest currency pairs traded in the world. It is also among the most popular pairs to trade and is considered a major forex pair.

If you’re considering trading this pair, read on for a quick dive into the history of these currencies, their dynamics, and how you can trade this pair.

If you want to read more articles about our pairs, check out our posts on: USD/JPY and EUR/CHF.

Currency background

The British Pound (GBP)

GBP is the official currency of the United Kingdom and its territories. Its history can be traced back to continental Europe. With over 1,000 years of history, it is one of the oldest, if not the oldest, currency still in use. In 1694, the Bank of England was established, and banknotes entered circulation shortly after.

The GBP’s importance goes beyond the UK and its territories. It used to be the dominant international currency before USD took over in the 20th century. However, it is still among the most widely used currencies for financial transactions worldwide, along with the USD and the Euro (EUR). Further, as of 2021, the GBP comprised 5% of official foreign reserves (i.e., share of currency reserves held by central banks).

The US Dollar (USD)

USD is the official currency of the United States, dating back to the 18th century. In 1785, the US adopted the dollar sign, which is now, perhaps, the most recognizable currency symbol in the world.

The USD plays a major role in the global economy, dominating international finance. It is the most active currency for international payments. It has also been the top international reserve currency since World War II, with an over 50% share of global reserves. In forex markets, almost 90% of all transactions involve USD.

The Plaza Accord

No background of these two currencies would be complete without mentioning the historic Plaza Accord.

In 1985, the US, UK, France, Germany, and Japan—then known as the G-5—agreed to jointly intervene in the currency markets to correct trade imbalances. The devaluation of USD was meant to reduce the increasing US trade deficits.

In a couple of years that followed the agreement, the USD declined in value by about 50%, while GBP and the other currencies appreciated by about 50%.

Factors you need to consider in trading GBP/USD

The GBP/USD pair is among the most liquid in the forex market, with smooth price movements as there’s enough volume of trade in the market.

Various factors move the prices of currency pairs in the forex market. For most currency pairs, prices are affected by economic trends and geopolitical circumstances, both locally and globally.

Here are some factors that drive the GBP/USD dynamics:

Economy

Both the US and the UK are among the largest economies in the world.

Due to its size and role in the global economy, the economic situation and policies in the US affect many economies and markets worldwide. In general, the GBP/USD rises when the UK economy grows more than US economy.

If you’re trading US-based pairs, you can keep up to date with US economy updates through government data releases and economic reports or Fusion's economic calendar, which includes data such as GDP growth, interest rate decisions and balance of trade.

Trade balance

The US is one of the three largest players in global trade, along with the European Union and China. The US is among UK’s major trading partners, accounting for about 10% of UK imports and receiving over 15% of UK goods exports.

The trade balance situation generates some volatility for GBP/USD. GBP/USD rises when current account balance (i.e., the balance of trade between the two countries) increases for the UK.

Central Bank policies

The Federal Reserve (Fed) sets the monetary policy in the US, a key determinant of currency strength, with the aim of stabilizing US prices and maximizing employment. In the UK, the Bank of England (BoE) sets the interest rate to maintain low and stable inflation. It reviews rates every 6 weeks.

A rule of thumb here is that the pair rises when the BoE interest rates rise more than the Fed rates.

As the USD plays an important role in international markets, movements in interest rates set by the Fed have a critical impact on the movement of many currencies worldwide, including GBP. In 2022, steep rate increases have strengthened the US dollar, causing other currencies to dive as investors rush to USD.

Geopolitical conditions and global risks

Like other currency pairs, the GBP/USD is also driven by political uncertainties and global risks.

The GBP took a hit following the global recession in the late 2000s. In 2016, after the announcement of Brexit, the GBP dived to its lowest against the USD, as UK’s decision created uncertainties to how its trade prospects would pan out.

GBP/USD and GBP/EUR - 2014-2021

As USD is a global reserve currency, it serves as a haven at times of global uncertainties. During the height of the COVID-19 pandemic in 2020, the GBP/USD rate dropped by 12% as investors sold the GBP and rushed to the safer USD.

GBP/USD and GBP/EUR - 2007-2010

Conclusion

Is the GBP/USD pair worth going into?

The US and the UK are among the largest economies in the world, with both USD and GBP playing important roles in international finance. The two countries share strong economic relations.

In forex markets, almost 90% of all transactions involve the USD. Post-1980, the pair has been less volatile, with extreme movements stemming from major global and regional events such as the Brexit and the COVID-19 global situation. The pair is one of the most liquid in the market.

If you’re new to the forex market, trading with highly liquid currencies such as GBP/USD could benefit you. This is because many strategists recommend trading in these currency pairs while you’re still improving your grasp of forex trading. You're also in luck, in that, Fusion Markets is the lowest cost regulated broker on the market. Start trading today!  

Extremely liquid and highly traded, the USD/JPY pairing is one of the major pairs of the foreign exchange market, being the second most traded pair by volume behind EUR/USD. Used to denote how much 1 US Dollar (the base currency) converts to Japanese Yen (the quote currency), the volatility, reserve-held status of both currencies, and liquidity have made it a popular trading pair among Forex Traders.

Historically the Japanese Yen has fared well against the US Dollar in times of market turmoil, as many investors view the Yen as a safe-haven currency. This was most apparent during the Global Financial Crisis (GFC) in 2008 and post GFC market rebound.

USD/JPY from 2005-2015

What factors affect USD/JPY?

The USD/JPY pair is influenced by both the US and Japan’s monetary policies, in particular those related to treasuries and interest rates.

Differences in policies and interest rate decisions by the Federal Reserve (FED) and the Bank of Japan (BOJ) are often one of the key drivers of the pair, and have in the past correlated closely with USD/JPY movements.

These differences have further been compounded with Japan’s introduction of Qualitative and Quantitative Easing (QQE) with Yield Curve Control (YCC) in 2016.

Historically, when US treasury prices rise, the USD/JPY pair weakens. Similarly, when US treasuries fall, the US dollar strengthens against the Yen.

With bond yields being a key driver, factors that affect bond yields such as interest rate expectations and inflation can significantly affect the pair. For example, as rising interest rates lead to higher bond yields, it also subsequently leads to the USD/JPY strengthening.

Therefore, when the Fed or BOJ intervenes to control inflation, deflation or stagflation with changes in interest rates it affects USD/JPY.

While treasuries and interest rates are often seen as one of the core drivers of USD/JPY, similar to other Forex markets, a range of other economic factors also play a role in the movement of the pair.

Some other economic factors that have played a role in the past are: Japan’s import/export balance, natural disasters, GDP, CPI, unemployment rate and wage growth. Although these do not influence the pair as much as US treasuries and interest rates, they can create significant price movements depending on how unexpected the event is.

For example, following the 2011 Tsunami in Japan, the Yen surged against the US Dollar with pundits expecting that Japanese investors would have to repatriate to cover the cost of the damages.

USD/JPY March 2011

Why is the Yen weakening and USD/JPY soaring?

As mentioned above, interest rates and monetary policy are some of the biggest drivers of the pair. This was further magnified during the COVID-19 outbreak and the subsequent Quantitative Easing (QE) policies of countries worldwide with stimulus schemes issued by many governments including the US and Japan.

In the case of the US this was one of the major factors to its rising inflation. As such, the US has begun implementing interest rate hikes, and is expected to more aggressively raise interest rates throughout 2022 and 2023.

In comparison, the BOJ has opted to not introduce any interest rate hikes in the short term and instead plans to continue with their stimulus and subsidies packages. Japan’s history with deflation and negative rates makes this position understandable, but the weakening Yen has made Haruhiko Kuroda, the Governor of the BOJ, express concerns.

Japan’s plans to continue with their proposed stimulus has led to the Yen weakening not only against the US Dollar but other foreign currencies where central banks plan to increase interest rates, such as the UK and GBP.

It will be important to keep an eye on USD/JPY as the monetary policies of the FED and BOJ continue to diverge.

How do I trade the USD/JPY pair?

As Treasury bonds tend to affect the pair, looking at yields across different maturities can be a good basis to begin your analysis. This can help forecast the future of the pair, and overall provide a solid fundamentals-based foundation for other analysis.

Another useful indicator, as USD/JPY can represent market confidence, is the S&P 500, as it may provide early warning signs of overall market reversals.

In terms of when to trade the pair, 12:00 to 15:00 GMT (when the Tokyo market isn’t open) has been one of the most volatile and best times to trade the pair. Even though the Tokyo Market isn’t open yet, this period tends to have high volatility as it is when the London and New York markets overlap.

In terms of when not to trade the pair, you want to avoid “quiet” times in the market such as 21:00-24:00 GMT when the New York market is closed, London is sleeping, and the Tokyo market is yet to open. Similarly, 03:00-5:00 GMT is considered another quiet period as the Tokyo market is nearing the end of the day, and the London and New York markets are not open.