The Pound Sterling has been mighty impressive against US Dollar strength. On Tuesday, it hovered around 1.3380 during European trading hours. The increase comes on the heels of Moody’s recent one-notch downgrade of the United States’ sovereign credit rating. Moreover, apprehensions regarding the state of US-China trade relations have been rekindled. The British currency’s gains constitute the second straight day of advances as the pound reverses course along with its foreign exchange counterparts today.
The UK may have just won a new trade, defense and security-centric “reset” deal with the rest of the European Union. Consequently, the Pound Sterling has reaped huge rewards from this turn of events. The deal, intended to strengthen the UK’s relationship with Europe after its departure from the union, has offered a new kick of energy for investors. With continued bullish trends observed in the GBP/USD pair, analysts are closely monitoring key technical levels to gauge future movements.
Pound Sterling Gains Momentum
Britain’s Pound Sterling appreciated strongly against all its peers on Tuesday, with the sole exception of the Japanese Yen. Sentiment was somewhat further lifted by an optimistic tone from the UK. GBP/USD pair rose to around 1.3380. Moody’s surprise downgrade of US sovereign debt has sent waves of even greater volatility through the Dollar. By extension, that means investors are looking at the relative stability – and devaluation – of the British currency.
The GBP/USD pair daily has stayed above the 20-day Exponential Moving Average (EMA) just below 1.3280. On the flipside, it has delivered impressive bullish strength. Analysts suggest that this trend indicates sustained confidence in the Pound’s performance, particularly in light of recent geopolitical and economic shifts.
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Further illustrating the underpinnings of the resilience of the Pound Sterling are the latest developments in trade agreements. This was set against the backdrop of the UK securing deals with India and the United States so far this month. Now, it has signed its third bilateral deal in less than three months with the EU in hand. This highly welcome, proactive approach to international relations is set to increase long-term economic stability and create greater investor confidence in the UK.
Technical Indicators and Market Sentiment
The biggest test for the GBP/USD pair is clearly the three-year high at 1.3445. As such, market participants carefully watch this level as they gauge the market’s future resistance points. Moreover, the psychological 1.3000 level is expected to provide significant support for the pair in the near term.
Meanwhile, the 14-day Relative Strength Index (RSI) is on the upper limit of 40.00-60.00 zone. This is an indication that the upward momentum is currently very strong, but traders need to be on high alert for potential corrections. As the market continues to absorb these changes, what is expected in the next round of economic data will be very important in determining sentiment.
On the other side of the block, the UK publishes its CPI data for April on Wednesday. These new data are likely to provide transparency into the predominant inflationary pressures that are battering the economy. Analysts are of the opinion that this data would determine further movements of the Pound Sterling. Investors are looking forward to seeing how it will approach monetary policy and broader economic conditions.
Broader Economic Context
Like all currencies, the recent performance of the Pound Sterling needs to be understood against a backdrop of broader economic dynamics. Moody’s recent downgrade of US sovereign debt has raised new alarms about fiscal irresponsibility. This move has increased pressure to US-Chinese trade relations. This unprecedented environment has pushed investors to look for refuge in selected native currencies. Perhaps making this uncertainty even worse is that the Pound, in particular, is seen as comparatively stable.
International markets seem to be responding to all of this. Investors need to assess how geopolitical tensions and monetary and fiscal policy will influence currency trends in the weeks and months ahead. Traders in the foreign exchange markets will find themselves in uncharted waters. UK domestic policy shifts, bolstered by external economic headwinds, will further develop this complex and nuanced setting.
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