In a recent development, US President Donald Trump confirmed that both Russian leader Vladimir Putin and Ukrainian President Volodymyr Zelenskiy expressed their desire for peace during separate phone calls. This revelation could have significant implications for international relations and market dynamics. Meanwhile, the US Dollar Index (DXY) experienced a slide, reaching near 107.50, as market participants digested various economic data and geopolitical news. Notably, the Pound Sterling (GBP) strengthened in Thursday’s European session, buoyed by positive UK economic data and a generally optimistic market sentiment.
Manufacturing Production in the United States defied expectations by growing 0.7% instead of the anticipated 0.1% decline, showcasing resilience in the sector. Conversely, the US annual headline inflation accelerated to 3% in January, up from the previous 2.9%, signaling persistent inflationary pressures. In Europe, the EUR/USD pair traded with moderate gains above 1.0400 during the European session, reflecting mixed sentiments across the currency markets.
The UK economy also showed unexpected vigor, with GDP data exceeding expectations in December and throughout the last quarter of the previous year. The UK Gross Domestic Product (GDP) rose at a faster pace of 1.4% year-on-year (YoY) in the last quarter of 2024, surpassing estimates of 1.1% and the 1% growth observed in the third quarter. Despite this upbeat data, the Bank of England (BoE) halved its GDP forecasts for the year to 0.75% during their recent monetary policy meeting.
The BoE's decision to reduce borrowing rates by 25 basis points to 4.5% was accompanied by caution regarding further interest rate cuts. A BoE policymaker, Pill, remarked, "We are able to remove some of the restrictions we imposed because of the successful – but not yet complete – process of disinflation." This statement underscores the central bank's careful approach as it navigates economic challenges.
The Pound Sterling's performance was bolstered by these favorable conditions, with traders noting that multiple tailwinds contributed to its strength. The December 30 high of 1.2607 is expected to act as key resistance for the GBP/USD pair, while the January 13 low of 1.2100 serves as a crucial support zone.
In contrast, US President Trump is poised to announce reciprocal tariffs, which could potentially enhance the safe-haven appeal of the US Dollar once more. These tariffs may influence market dynamics by prompting investors to seek stability amidst geopolitical uncertainties.
The 14-day Relative Strength Index (RSI) for various assets oscillated within the 40.00-60.00 range, indicating a sideways trend as traders assessed broader market conditions. The interplay between economic indicators and geopolitical events remains a focal point for market participants.