Cable

DEFINITION of 'Cable'

Cable is a slang term used among forex traders referring to the exchange rate between the U.S. dollar and the British pound sterling. It can also be used to refer simply to the British pound sterling. Since the pound versus the dollar is one of the most commonly traded currency pairs, the term is heard frequently in trading rooms.

BREAKING DOWN 'Cable'

Cable only refers to the British pound with reference to prices and trading against the dollar. Quotes against other currencies such as the euro or the Japanese yen refer to the pound as sterling, as in "I need a price in sterling/yen" or "I think euro/sterling will rebound from its current lows." The abbreviation for the pound is GBP, which stands for Great Britain pound. You may hear someone dealing in the forex market say "Cable is up today" or "Cable has been trending lower lately." This term supposedly derives from the advent of the telegraph in the mid-19th century. The pound was the dominant currency at the time, and transactions between the pound and dollar were executed via transatlantic cable. Forex traders are sometimes referred to as "cable dealers."

Dominant Currency Until Post-World War II Period

The British pound or pound sterling is considered the oldest currency still in usage. It was the world's dominant currency for centuries, and thus was considered the primary reserve currency in which other nations held their excess cash. As the British Empire dominated global commerce, the pound dominated international finance. It was legal tender in most colonies, including large portions of Africa and Asia. The Empire began to fade following World War I, as the enormous economic cost of the war took a toll on the economy. With the British government heavily in debt to the United States, the dollar began to assume the reserve currency status that the pound had held. This change was complete by 1949, when the British government was forced to devalue the pound by 30.5%. By the early part of the 21st century, the dollar was the world's leading reserve currency, followed by the euro. The pound has settled in third place.

Base Currency

In foreign exchange, the base currency is the one against which all others are compared. When the pound was the world's dominant currency, it was also the base currency for trading, so a price quote indicated the amount of currency X that needed to be exchanged for the pound. It is still the base currency in trades against the U.S. dollar, Canadian dollar and Japanese yen, among others. But when the euro started trading on Jan. 1, 1999, it took over base currency status for any combination in which it was traded. Pricing for cable is thus the number of dollars it takes to buy one pound. But a price in euro/sterling is the number of pounds it takes to buy one euro.

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