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When FX traders talk about ‘trading the cable’, they are talking about trading US dollars and pounds sterling. This used to be the most commonly traded currency pair in the world and remains one of the most common. So, using the term ‘cable’ — for example ‘Cable’s been up lately!’ or Cable’s down today!’ — is useful shorthand.
The exchange rate between these two currencies is usually quoted as GBP/USD. In other words, the pound is usually the base currency. So if you’re told that cable is at 1.25, this means that £1 is worth $1.25. And ‘cable is trending upwards’ means the pound is strengthening against the dollar.
The pound sterling is typically also the base currency in trades against the Australian Dollar, Canadian Dollar, New Zealand Dollar, Japanese Yen, and Swiss Franc.
- The term ‘cable’ dates back to the 1850s, when the Atlantic Telegraph Company built the first underwater transatlantic telegraph cable. This cable, which ran from Newfoundland to a small island off County Kerry in Ireland, failed within three weeks. However, other telegraph cables soon followed and, by the mid 1860s, the service was much more reliable. At the time, the British Empire was at its height and the pound sterling was the world’s dominant currency. Foreign currency traders communicating through the transatlantic telegraph cables started being called ‘cable dealers’, and the name stuck.
- The Euro only came into existence in 1999. As a nod to the term “cable”, EURUSD is sometimes nicknamed “fiber”
Want to know more?
- This article looks into the impact of telegraph cables on transatlantic trade. In particular, traders could suddenly forecast supply and demand more accurately, making international markets less volatile and international trade less risky.
- The US dollar’s arguably took over as the world’s dominant currency in 1949, when the UK devalued the pound by 30%. This Hansard paper reproduces then Chancellor of the Exchequer Lord Cripps’s speech in which he explained the reasons for the devaluation.
Assure Hedge’s perspective
” If you have a British business trading with the US, “cable” is a term you’re going to get very familiar with. Because it’s one of the most liquid currency pairs on the FX markets, there are a variety of cost-effective ways to hedge your exposure”
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