Currency Pair GBP/USD
Taking flight like never before, the volatility in foreign exchange market has flown to new highs. Now all eyes are on what the most recent UK economic data are saying in terms of ongoing inflation levels. UK inflation surprised on the upside, coming in at 3.5%, higher than the consensus of 3.3%. This increase in inflation would significantly influence the Bank of England’s Monetary Policy Committee (MPC) on interest rates. As a result, intraday traders have been a bit more risk averse.
GBP/USD is up strongly. This increase largely aligns with other economic trends and the interplay between the British Pound and US Dollar. Because of their roles in this most important of currency pairs, the Bank of England (BoE) and the Federal Reserve exert great influence via their monetary policies. Inflation continues to be a top concern. Consequently, the BoE can defer front-loaded rate cuts, shifting GBP/USD market dynamics.
Speculators should be especially careful on an intraday basis as the traders tread through this diverse environment. Analysts point to a three-wave move as likely before GBP/USD embarks on any major bullish move. This possible pullback would be a welcome correction, given the downturn we’ve seen this year.
The recent rally in GBP/USD is a result of both UK-specific factors and US ones. Speculation around geopolitical events and general market sentiment play a big role in currency movements as well. Key economic indicators that include GDP growth and inflation rates are still central in driving expectations for future interest rate hikes.
With UK inflation currently at 3.5%, this figure should make anybody worried about the BoE’s hawkish take on monetary policy shudder. A stronger than expected inflation figure increases the likelihood that the central bank will delay its anticipated policy easing. Such a delay would likely have a large bearish impact on the GBP/USD exchange rate.
GBP/USD is a great example of the complicated world of foreign exchange trading, where many different elements come together to drive prices in one direction or another. Traders should keep their macro lens on, recognizing that although recent progress is encouraging, strong macro headwinds could still make sustained upward movement a challenge.