The GBP/USD currency pair took a significant hit last week, falling by 0.3%, and breaking its three-week rally. On the new week Monday, the currency pair worked into a consolidation range, hovering underneath that key big figure/psychological level of 1.3300. Despite closing virtually unchanged on Friday, the pair’s recent performance reflects underlying concerns regarding the US economy and ongoing trade negotiations.
King Dollar – aka the previously all-powerful “King Dollar” – resumed its glory by posting its third-straight weekly advance. The confluence of three key factors have sparked this boom. We cannot underestimate optimism. Fears about the tariff war are diminishing, and optimism is taking hold as U.S. trade deals with its major Asian trading partners are coming into view.
US Labor Market Data and Currency Implications
US Dollar reaction to disappointing labor market data over the last month has been decidedly mixed. The eventual release of this data has not inspired any interpretive strength. It underscored the precariousness of the economy. The market’s response to these numbers indicates that traders are still very risk averse and are focusing on what these numbers mean for future monetary policy moves.
US President Donald Trump started making waves. He declared victory on “potential” trade deal with India, South Korea and Japan. Traders are experiencing an unexpected wave of enthusiasm. They feel these declarations increase the odds for long-term economic growth and stability in the area.
As rosy as these predictions sound from the White House, Beijing has walked away from continuing trade discussions with the US. This dismissal raises grave concerns about the durability of any future deals that could be reached. More broadly, it sows even more chaos in the currency markets.
The GBP/USD Dynamics
With GBP/USD now firmly below the 1.3300 mark, traders will be keenly watching the pair’s moves to identify any hints on the direction of travel. Currently, traders are in a consolidation phase, suggesting signs of indecision. They’re constantly watching the domestic and international economic markets to be able to make the right decisions.
Should the currency pair be unable to develop northward traction, this may prove to be an indicator that investors’ sentiment has changed. Market analysts advise that any major developments in ongoing UK-EU trade negotiations could have a considerable impact in shaping GBP/USD’s trajectory over the next weeks. All eyes now turn to see how these negotiations progress and if anything is agreed upon.
Additionally, the interplay between King Dollar’s strength and the UK economy will continue to play a crucial role in shaping GBP/USD’s performance. With Brexit-related uncertainties continuing to weigh on traders’ minds, many are apprehensive to make big bets on the British Pound.
Future Outlook and Key Considerations
Further down the line, US-Asia trade agreements will become important. These agreements will have a profound impact on international market sentiment. Trade traders are on constant alert for any fresh pronouncements from President Trump regarding the ongoing negotiations. These developments have the potential to move both King Dollar and GBP/USD in a big way.