What is GBP? A complete guide to investing in the British Pound

What is GBP? The Core Definition of Currency

The British Pound (GBP) is the official circulating currency of the United Kingdom and its territories. The answer to the question “que moneda es gbp” is simple—it is one of the world’s four major reserve currencies. From the code perspective, GBP represents the pound sterling, while GBX stands for pence (one hundredth of a pound). This distinction is especially important in the stock market, where many stocks are priced in pence.

The pound is issued by the Bank of England and is symbolized as £. As the oldest existing currency in circulation, the pound holds a significant position in the international financial system. According to data from the International Monetary Fund, the GBP is the fourth-largest reserve currency globally, after the US dollar, euro, and Japanese yen.

The Status of GBP in the International Market

When exploring the question “que moneda es gbp,” it’s essential to understand its importance from multiple perspectives. The trading volume of GBP in the foreign exchange market ranks second only to the US dollar, Japanese yen, and euro, accounting for about 20% of the global daily trading volume, making it one of the most liquid currencies.

As the sixth-largest economy in the world (by GDP), the UK’s economic performance directly influences the value of the pound. The GBP exchange rate is affected by various factors—monetary policy by the Bank of England, inflation rates, employment data, and GDP growth all reflect in the currency’s value.

The Far-Reaching Impact of Brexit on GBP

The 2016 Brexit referendum was a turning point in the history of the pound. Before the referendum, the GBP/EUR exchange rate reached a high of 1.43. Since then, the pound has experienced sustained depreciation pressure. As of February 5, 2024, the GBP/EUR rate has fallen to 1.1710, reflecting the long-term impact of political and economic uncertainties post-Brexit. In October 2022, the pound briefly dropped to 1.10 euros, indicating market concerns over the UK’s economic outlook.

In recent years, the UK economy has faced multiple challenges: political instability, high inflation pressures, rising interest rates, and a global energy crisis. These factors collectively increased the volatility of the pound.

The Role of GBP in the Forex Market

The foreign exchange (Forex) market is the largest financial market globally, operating 24 hours nonstop. For multinational corporations and investors, understanding GBP’s role in this market is crucial.

Currency pairs are the core units of forex trading, reflecting the value of one currency relative to another. For example, GBP/USD indicates how many US dollars are needed to buy one pound. Fluctuations in these rates create profit opportunities for traders.

Spread is a key concept—it refers to the difference between the bid and ask prices. A narrow spread indicates high market liquidity and low trading costs, while a wide spread suggests the opposite. Traders must pay attention to this metric, as it directly impacts investment returns.

Analysis of Major GBP Currency Pairs

Highly liquid pairs like GBP/USD and EUR/GBP generally offer more favorable spreads, making them more attractive to investors. GBP/CHF, with relatively lower liquidity, has a wider spread.

GBP/USD: The Most Active GBP Pair Globally

GBP/USD is the third most traded currency pair in the world, accounting for 11% of the total forex market volume. This pair is often called the “cable trade,” with daily trading exceeding $330 billion.

This enormous daily volume ensures high market liquidity—buy and sell orders can be executed within fractions of a second. The high liquidity results in relatively low volatility, with the daily fluctuation usually not exceeding 1%, providing traders with a relatively stable trading environment.

As of February 5, 2024, the GBP/USD quote is $1.2585, with a 52-week range of 1.18030–1.31457, and an annual increase of 4.5%.

Recent Market Trends

In the first week of February, the pound faced pressure, recording its largest weekly decline since early December. US employment data exceeded expectations, reducing the likelihood of the Federal Reserve cutting interest rates soon, which strengthened the dollar and pressured the pound to $1.2562, down 0.66% for the week.

The Bank of England maintained interest rates and adjusted its forward guidance. Governor Bailey stated that a rate cut is still far off. Markets expect the BoE to cut rates four times by 25 basis points this year, with the first cut in May having a 50% probability.

Key Factors Affecting GBP/USD

The interest rate differential between the two countries is crucial, as it directly influences capital flows. Currently, US rates are at 5.5%, and UK rates are at 5.25%. Inflation rates are 3.4% in the US and 4% in the UK. These macroeconomic indicators, combined with geopolitical risks (such as Middle East tensions) and the US presidential election, shape the future trajectory of this currency pair.

EUR/GBP: Euro-UK Comparison

EUR/GBP represents the value of the British pound relative to the euro and is one of the most liquid currency pairs in the forex market, accounting for 3% of total forex trading volume.

The 52-week range is between 0.84926 and 0.89832, with a yearly change of -4.54%. Currently, the pair trades around 0.8580.

Recently, the pound has strengthened against the euro, mainly due to differing policy paths taken by the two major central banks. The European Central Bank sets interest rates at 4.5%, while the Bank of England’s rate is 5.25%. Eurozone inflation is 2.8%, UK inflation is 4%. Market expectations are for the ECB to adopt a more aggressive rate cut in March, while the BoE may delay until June, supporting the pound’s relative strength.

Factors Influencing EUR/GBP

Employment data, trade balances, and policy signals from both the Eurozone and the UK significantly impact this pair. Geopolitical risks also cannot be ignored, especially during periods of increased global uncertainty.

GBP/CHF: Collision of Stability

GBP/CHF reflects the economic relationship between the UK and Switzerland, two major financial centers. The Swiss franc and the pound are the fourth and sixth largest reserve currencies worldwide.

The 52-week range is between 1.05577 and 1.15469, with a yearly change of -2.04%. As one of the most stable currencies globally, the Swiss franc represents Switzerland’s status as a global private banking hub and its per capita income of nearly $50,000.

The pound remains resilient against the Swiss franc because the Bank of England maintains relatively high interest rates, while the Swiss National Bank’s rates are comparatively low. UK inflation expectations suggest rates may stay high for an extended period, supporting the pound. Meanwhile, the Swiss franc often acts as a safe haven during periods of geopolitical and economic uncertainty, especially in the Middle East.

Factors Affecting GBP/CHF

Decisions on interest rates by the Swiss National Bank and the Bank of England, inflation rates, bilateral trade relations, and Switzerland’s appeal as a safe haven (particularly during geopolitical tensions in regions like the Middle East) all influence this pair’s movement.

GBP/JPY: The “Dragon” Story—Opportunities in High Volatility

GBP/JPY is famously nicknamed the “Dragon,” representing the exchange rate between the pound and the yen. Known for its high volatility, it offers dynamic opportunities for traders seeking rapid market movements.

As of February 5, 2024, the 52-week range for GBP/JPY is between 157.394 and 188.957, with an annual increase of 17.28%.

Recently, GBP/JPY has been trending upward, driven by the UK’s relatively strong economy and expectations of divergence in monetary policies between the Bank of Japan and the Bank of England. Markets anticipate the BOJ will pursue more aggressive easing than the BoE, boosting the pound’s attractiveness. The yen tends to appreciate during geopolitical tensions in the Middle East and other risk-averse periods, but this relationship contrasts with the pound’s strength.

Factors Influencing GBP/JPY

Bank of Japan’s monetary policy (especially interventions in forex markets), political and economic stability in both countries, energy prices, and extreme weather events influence the yen. Japan’s reliance on energy imports makes it particularly sensitive to global energy price changes. Japan’s current interest rate is -0.1%, UK’s is 5.25%. Japan’s inflation rate is 2.6%, UK’s is 4%.

Investment Advice and Summary

For long-term investors, the relative stability of the UK economy and the pound’s status as a global reserve currency make it a solid choice for diversification. Despite geopolitical risks and economic challenges, the pound has shown resilience.

For short-term traders, the volatility of GBP/JPY and GBP/USD—driven by differing monetary policies in Japan, the UK, and the US—offers opportunities for speculation. Using CFDs, traders can capitalize on rapid fluctuations and market reactions during economic data releases and central bank decisions.

Regardless of the strategy, closely monitoring central bank statements, macroeconomic data, and global risk events is key to success.