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GBP/USD: An Overview

Fusion Markets

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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.


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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.

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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!  


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Relevant articles

Market Analysis
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How Global Interest Rate Divergence Is Shaping Forex Opportunities in 2025

Read Time: 12 minutes


Central banks around the world are no longer moving in tandem. In 2025 we see a clear interest rate divergence: some economies are cutting interest rates to support growth while others keep rates high or even hike them.


For forex traders, these policy differences are a big deal. They create shifts in currency values and fresh trading opportunities.


This article breaks down what interest rate divergence means, why it matters for FX, how major central banks like the Fed, ECB, RBA, and RBNZ are charting different paths this year, and what it all means for currency pairs like NZD/USD, AUD/USD, AUD/NZD, and EUR/USD.



Table of Contents



What Is Interest Rate Divergence (and Why Traders Care)


"Interest rate divergence" simply means central banks are going in different directions with their monetary policy. One bank might be raising or holding rates, while another is cutting rates.


These differences matter because interest rates heavily influence currency demand. In general, higher interest rates tend to attract foreign capital seeking better returns, boosting demand for that currency and causing it to appreciate, while lower rates can have the opposite effect.


For example, if New Zealand's interest rates fall well below U.S. rates, holding money in NZ dollars becomes less attractive relative to U.S. dollars. Traders respond by moving capital accordingly – a dynamic that shifts exchange rates.


Diverging interest rates can also spur carry trades (borrowing in a low-rate currency to invest in a high-rate one), further strengthening high-yield currencies.


Diverging Central Bank Paths in 2025


The start of 2025 has made one thing clear: the world's major central banks are not on the same page. Economic conditions vary across regions, so policymakers have taken different monetary paths – from aggressive easing to cautious pauses and even tightening.


According to Reuters, early 2025 saw the United States holding rates steady, the euro zone cutting rates, and outlier Japan hiking – a sharp change from 2024 when most banks were easing in unison.


Let's look at the distinct approaches of four key central banks and the reasons behind them:



Federal Reserve (USA) – Cautious Hold at High Rates


The U.S. Federal Reserve (Fed) entered 2025 with interest rates at multi-year highs and has opted to hold them steady for now.


After a series of rate hikes in 2022–2023 to fight inflation (and a few modest cuts in late 2024), the Fed's benchmark rate is sitting around 4.25%-4.50%.


Fed Chair Jerome Powell has signalled no rush to cut rates again until inflation is convincingly back to target and the labour market cools.


The U.S. economy has remained surprisingly strong, with solid growth and only "somewhat elevated" inflation, so the Fed is being very cautious about easing policy too quickly.


In December, Fed officials even revised their forecasts, indicating they expect only two small rate cuts in 2025 (down from four expected earlier).


By keeping U.S. rates high relative to others, the Fed is supporting the dollar's value – a point we'll see reflected in currency moves like EUR/USD.




European Central Bank (Eurozone) – Pivoting to Rate Cuts


Across the Atlantic, the European Central Bank (ECB) is taking the opposite route.


With eurozone inflation finally coming under control (somewhat) and growth fading, the ECB has pivoted to cutting rates in order to strengthen the economy.


They cut in late January, by 25 basis points – its fifth consecutive cut since mid-2024. This, in turn, brought the deposit rate down to about 2.75%.


Notably though, ECB policymakers have kept more easing on the table, reflecting confidence that euro-area inflation is headed firmly toward the 2% target.


In fact, markets have been pricing in multiple further ECB cuts in 2025 (around three more 0.25% reductions) as the eurozone economy struggles to gain some momentum.



A graph of a financial rate AI-generated content may be incorrect.



Figure: Change in policy rates by major central banks (Mar 2024 vs Feb 2025). Orange dots indicate central banks (like New Zealand, Canada, Eurozone, etc.) that have cut rates; yellow shows those that held steady (e.g. the U.S. Fed), and purple indicates rate hikes (e.g. Japan). Diverging policies are evident, with the RBNZ and ECB easing while the Fed stands pat and the Bank of Japan tightens.



Actionable Ideas for 2025


Global interest rate divergence has become a defining theme for forex in 2025. The Fed and RBA are cautiously standing pat or easing only slightly, whilst the ECB and RBNZ are more aggressively cutting rates to combat economic weakness.


These divergent paths have shifted interest rate differentials, in turn driving notable moves in FX markets – a stronger U.S. dollar relative to the euro, Aussie, and Kiwi; a surging AUD against a soft NZD; and other carry trade dynamics playing out.


Follow Central Bank Signals:

Keep a close eye on central bank meetings, statements, and economic data. A hawkish comment from the Fed or a dovish surprise from the RBA/ECB can quickly alter currency movements.


Trade the Differentials (Carry Trades with Caution):

Divergent rate policies mean some currencies offer higher yields than others. Traders can seek opportunities by going long currencies with higher or rising rates and shorting those with falling rates, effectively capturing the interest differential.



Conclusion


Global interest rate divergence is reshaping forex markets in 2025, creating clear winners and losers among currencies.


By understanding each central bank's policy trajectory and its impact on currency pair interest differentials, even beginner and intermediate traders can better navigate the trends.


Keep an eye on the data and use this knowledge to make informed trading decisions.


Whether you're capitalising on USD strength, taking a carry trade, or managing risk on a volatile EUR/USD, the key is to align your strategies with the underlying interest rate story.


As always, combine fundamental insights with sound risk management. Interest rate divergence is offering opportunities – and with the right approach, forex traders in 2025 can position themselves to take advantage of these global shifts in monetary policy.

02/04/2025
Market Analysis
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Strategic View: Planning For 2025

Read Time: 7 - 9 Minutes.


There’s already been some fantastic volatility in the forex market this year – mainly attributed to Trump, but also ongoing discussions around monetary policy in key economies. 


Even if you’re a short-term trader, it’s important to look ahead and form a strategy for the year. There’s currently a convergence of high U.S. real yields, central bank policies, and geopolitical risks that all traders need to keep on their radar. 


In this post, we will discuss the current themes for 2025, as well as identify ways in which we could capitalise on them. 


 

  1. The U.S. Dollar’s Strength and Global FX Implications 

The dominant theme in the FX market this year is the continued strength of the U.S. dollar (USD), fuelled by not only by Trump, but also high real interest rates and economic divergences.


Following what’s called the "red sweep" in the 2024 U.S. elections, markets have shifted expectations towards persistent USD strength in the first half of the year​. 


There’s several factors contributing to this trend: 


  • High U.S. Real Yields: Elevated interest rates in the U.S. continue to attract capital inflows, ultimately reinforcing the greenback’s strength. 

  • Diverging Monetary Policies: Whilst the Federal Reserve remains cautious about rate cuts, the European Central Bank (ECB) and Bank of Japan (BOJ) are expected to ease policy further. 

  • Tariff Risks and Trade Policies: Anyone watching the headlines would be aware of Trump’s recent rampage on tariffs – these new tariffs could further support the USD by dampening foreign currency demand. 

Volatility Strategies will be the play here, with policy uncertainty and trade negotiations in the air, options-based strategies such as straddles or volatility swaps on USD pairs could become very attractive. 

 

2. Carry Trade Opportunities in High-Yielding Currencies 


With real interest rate differentials widening, carry trades remain a key theme in 2025. The market is favouring currencies with strong yield advantages, such as the U.S. dollar and select emerging market (EM) currencies. 


Key High-Yield Currencies: 

  • USD: The dollar’s rate advantage makes it a prime funding currency. 

  • CAD: Despite trade risks, Canada’s interest rate environment remains somewhat supportive. 

  • NOK: The Norwegian Krone has shown improved carry appeal, as a result of Norges Bank resisting an aggressive approach to rate cuts​. 



Trading Strategies: 

  • Long USD/MXN or USD/ZAR: With emerging market currencies under pressure due to trade risks and high U.S. rates, going long USD against the Mexican Peso (MXN) and South African Rand (ZAR) could prove to be profitable. 

  • Short CHF or JPY in Carry Trades: Both the Swiss Franc and Japanese Yen are likely to underperform against high-yielding currencies due to negative real rates​. This could provide some attractive carry trade opportunities. 

  • NOK/SEK Call Spread: As Norway’s interest rate stance is firmer than Sweden’s, NOK/SEK longs could offer potential upside​. 

 


3. The Euro’s Structural Weakness and Political Uncertainty 


The euro (EUR) remains vulnerable this year due to a combination of economic underperformance and political instability. 


Key Risks for the EUR: 

  • Interest Rate Divergence: The ECB is expected to continue cutting rates, whereas the Fed remains on hold, for now. 

  • Trade War Exposure: Europe is a primary target for new U.S. tariffs, which could add to the weakening of the Euro. 

  • German and French Political Uncertainty: Domestic political risks, including German elections and policy uncertainty in France, add further downside pressure to the euro​. 



Trade Idea: 


Short EUR/JPY 


A graph of a stock market AI-generated content may be incorrect. 

Figure 1 – EURJPY Weekly Chart 


Given Japan’s relatively stable policy outlook and Europe’s tariff risk, going short EUR/JPY remains a key trade. 



Long EUR Volatility 


A graph of a graph AI-generated content may be incorrect. 

Figure 2 – Euro Volatility Index, daily chart 


For options traders, the euro’s downside risks make long volatility positions an attractive hedge against geopolitical shocks. 

 


4. Commodity Currencies 


Commodity-linked currencies such as the Australian Dollar, Canadian Dollar, and Norwegian Krone face some unique opportunities in 2025. 



The Oil Market’s Influence on FX 


Analysts are expecting crude oil markets to remain tight, with OPEC aiming to balance the supply and demand​. In doing so, this could lend support to oil-linked currencies such as CAD and NOK, provided that global demand remains resilient. 

Gold and Safe-Haven Flows 




A graph showing the price of a stock market AI-generated content may be incorrect. 

Figure 3 – XAUUSD (gold), daily chart 




Gold prices have surged in early 2025 – driven by fears of tariffs, geopolitical tensions, and central bank buying​. Whilst this supports the Australian Dollar to some extent, rising U.S. yields could ultimately cap AUD/USD upside. 



Trade Ideas: 

  • Long USD/CAD on Tariff Risks: The potential for broad U.S. tariffs on Canada could weaken the CAD, making long USD/CAD a defensive play over the long-term, especially given the bullish strength of the USD. 

  • Long Gold as a Hedge: With tariff risks escalating, gold remains a strong hedge opportunity against geopolitical uncertainty. 

 



5. Geopolitical Crossroads and FX Volatility 


Beyond macroeconomic fundamentals, geopolitical risks continue to hold the FX market at ransom in 2025. There’s potential for volatility to stem from: 


  • U.S.-China Trade Tensions: Renewed tensions from Trump could weigh on the Chinese Yuan (CNY) and ultimately spill over to other Asian FX markets, such as the AUD and NZD​. 

  • European Political Shocks: Elections in Germany and France could provide sharp moves in the EUR. 

  • Middle East and Energy Market Risks: Any disruptions to oil supply chains would adversely affect energy-linked currencies, such as the CAD. 

Trade Idea: 


Long USD/CNH 


A line graph with black and purple lines AI-generated content may be incorrect. 

Figure 4 – USDCNH, weekly chart 



Continued pressure on the Chinese economy and potential U.S. tariffs could push USD/CNH higher​. It would be wise to look for long opportunities above 7.375. 

 



Final Thoughts 


As we take on 2025, having an understanding of the key macroeconomic drivers, central bank policies, and geopolitical risks is no longer ideal, but necessary. 


  • USD strength remains a dominant theme, with potential for reversals in Q3 & Q4 this year.. providing that the Fed pivots. 

  • Carry trade opportunities favour high-yielding currencies, whilst funding currencies like JPY and CHF face ongoing pressure. 

  • The euro still remains vulnerable as a result of policy divergences and political uncertainty. 

  • Commodity currencies require a more careful approach – with CAD and NOK benefiting from oil strength, whilst AUD could be exposed to further downside risks. 

  • Geopolitical tensions add more ammunition to FX volatility – with the potential to either create more trading opportunities, or disrupt market structure.  


By keeping these key themes in mind, we’re able to form a more structured approach to 2025. Whilst there’s been some appealing moves in the market so far, there’s still plenty of room for trend changes and unexpected volatility. The key going forward is to stick to your trading plan, but expect the unexpected – especially as we begin to see the economic effects of Trumps’ executive orders. 


If you haven’t done so already, check out our post on Economic Indicators here. 


20/02/2025
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