The GBP/USD exchange rate is trading quietly underneath the psychologically-important level at 1.3450 through the midweek European trade. This stability is further reinforced by firm UK inflation data. In April, the UK’s annual CPI/CPIH inflation rate spiked from 2.6% in March to 3.5% in April. This vote to increase interest rates provided a short-term spike to the Pound Sterling. Yet, the pair has pulled back from past year’s peaks, demonstrating the complicated relationship between economic data, Fed monetary policy, and geopolitical severity.
Trade analysts noted the implication strong inflation data helped to momentarily prop up the Pound. That said, renewed trade tensions and increasing apprehension over the fiscal state of the United States are putting downward pressure on the Greenback. The combined effect has made for a tricky trading environment for GBP/USD. Even while facing eroding support, it still fights tooth and nail to protect its hard-earned wins.
The speculative nature of the recent US government sovereign credit downgrade last Friday is perhaps what has most sharpened the knives in this environment around the USD. That downgrade, combined with fears about US long term fiscal unsustainability, has led to a dollar selloff. This decrease has an immediate effect on the GBP/USD exchange rate. As a result, commodity traders are glued to these policy developments.
At the same time, the EUR/USD shows the mood in markets right now, clawing back further gains under 1.1350 despite US Dollar weakness. Not just the interconnectedness of currency markets, but how real this interconnectedness truly is. Movement in one currency pair can have a major effect on another.
In harmony with these currency fluctuations, commodity prices are providing their own loop-de-loops in making sure markets remain dynamic. Gold prices have hit close to a two-week high, above the $3,320 level and look set for stronger gains. The precious metal’s recently bullish performance is strong due to a plethora of supporting factors, many of which might affect GBP/USD indirectly.
“Gold price hits nearly two-week high around $3,320 area; seems poised to climb further.” – www.fxstreet.com
Economic data out of China is showing a slowdown that speaks to larger global uncertainties. Analysts are warning that the impact of trade war tensions is starting to damage Chinese confidence, with already slower economic activity in April. While this indirect impact would be distinct from normal GBP/USD price action, it’s still an important development to watch as it signals increasing risks to global trade dynamics.