Cautious trading in GBP/USD continued below the big figure 1.3400 on Wednesday’s EU session. This indicates a risk-off mood among investors, as they continue to look towards important releases expected in the US economy. Ahead of reports on jobs, GDP and PCE inflation, markets were on guard. Therefore, the currency pair faced negative traction, indicating it could find it impossible to go up more.
GBP/USD exchange rate looked increasingly vulnerable as it traded below the 1.3400 level. There is little doubt that market participants are proceeding with extreme caution. The U.S. economy’s recent performance and the news around key economic indicators to come is certainly shaping that sentiment. The anticipation surrounding the economic data indicates that investors are weighing potential implications for monetary policy and overall economic health.
As U.S. economic activity slows, recent data indicates economic contraction in terms of Gross Domestic Product (GDP). It declined at an annual rate of 0.3% in Q1. That is leading to greater nervousness about the strength of the U.S. economy as this contraction continues. It could strongly influence the Federal Reserve’s interest rate-setting decisions. Even with this GDP contraction, all eyes now shift to some upcoming reports that will help shed light on longer-term economic trends.
PCE inflation data will be the final touch to shape market dynamics going forward. In addition to GDP numbers, it’ll be just as important for revealing long-term economic trends. A strong outsized print of PCE inflation may serve to strengthen the U.S. dollar, thus placing bearish pressure on GBP/USD. Bullish inflation data gives a nice tailwind to the dollar. Certainly, it bolsters expectations for much tighter monetary policy from the Federal Reserve, which would likely cap any substantial upside in GBP/USD.
As the trading day nears a close, analysts and investors on both sides of the aisle are focused and anxiously awaiting these coming releases. The risk for potential volatility is higher, considering that both labor and inflation data have the potential to move markets dramatically. A stronger-than-expected labor market reading would likely lift the value of the U.S. dollar. Likewise, continued inflation could push the dollar stronger.
Should the jobs number disappoint, we could see GBP/USD recover back above 1.3400. Just as the collections impacts from high inflation provided a confluence of challenges, so too could signs of easing inflation present a chance for recovery. Today’s increasingly volatile and high-risk trading environment brings into sharper focus the importance of these economic indicators. Because, like it or not, they can alter competitive landscapes almost overnight.