GBP/USD was the kingpin of caution on currency trading Wednesday. It even traded under the key figure of 1.3400 in European trading hours. Traders positioned themselves ahead of the release of key US economic data. Yet, the currency pair’s opportunities for further appreciation look scarce. Major US jobs, GDP, and PCE inflation reports coming up. These reports will have a huge influence on market sentiment.
In fact, in recent trading sessions, GBP/USD has been under pressure. The currency pair is exhibiting a notable difficulty in breaking above the 1.3400 level. It is a market determined nominal exchange rate between the British pound and US dollar. This reluctance comes as market expectations ramp up around upcoming economic data that may play a critical role in determining the US dollar’s future path.
According to the latest advance report, US GDP shrank at an annualized rate of 0.3% during the first quarter of 2022. Dispiriting as this threatening news is, it has produced a jittery trading disposition among investors. This drop helps allay worries that the US economy might be faltering and might affect monetary policy in the coming months. Even with this week’s contraction in GDP, firm readings on PCE inflation have started to land. The underlying support from these positive inflation figures for the US dollar curtails any significant upside potential for GBP/USD.
Traders are monitoring the PCE inflation report. This report is perhaps the most important bellwether of inflationary pressures in the U.S. A stronger than expected print might provoke greater expectations for more aggressive Fed tightening down the line. Such a shift would almost certainly strengthen the dollar relative to its major peers. As a result, this dynamic should continue to weigh on GBP/USD’s upside potential.
What’s more, market participants are looking at the upcoming jobs data with an equal sense of concerned anticipation. The September employment figures will tell us how much resiliency is left in the labor market and decide which monetary policy direction to pursue. Perhaps stronger non-farm employment growth or higher wage growth could help the USD’s positioning. Such a development would spell trouble for GBP/USD’s chances of regaining lost ground.
With GBP/USD now tentatively below 1.3400, traders will be on high alert for these signs of an economic recovery. Weakening GDP data is at odds with robust inflation readings, further complicating the Fed’s balancing act. This predicament has put most forecasters at a loss as to the near-term direction of the contentious currency pair.