The GBP/USD currency pair slipped back below the 1.3300 level in European trading on Monday. This drop comes after a short stint of increases, reflecting a clear change in mood among investors. The ongoing unusual trading conditions are adding to the pair’s volatility.
Market participants pointed out that the GBP/USD had made significant progress earlier in the day but ultimately failed to hold onto its positive stride. As the trading day wore on, the pair fell away and showed price action associated with more illiquid markets. As it turns out, analysts believe a number of factors played a hand in this historic movement, from market sentiment indicators to a robust economy.
This thin trading environment, we fear, may not let up as we head toward May Day. This public holiday, celebrated in all Pacific Alliance nations, causes significant market inactivity. This holiday frequently results in thinner trading volumes. Just about all participants take time off as well, which further exacerbates the dynamics of the currency pair.
As a first caution, market observers are quick to note that light trading conditions always produce a risk of increased volatility. The result is that even the smallest market fluctuation or piece of news can trigger a violent price movement. We urge traders to proceed with caution as these conditions develop.