On Wednesday, the EUR/USD currency pair continued to trade with strength above the 1.1300 level. This increase was driven by the ongoing depreciation of the US Dollar. This increase is largely a result of re-ignited trade fears. New worries over the fiscal state of the union have exacerbated pressure for the Dollar.
On Wednesday, the EUR/USD was up throughout the day, showing investors confidence in the Euro while the global landscape remains very uncertain. The US Dollar has indeed been weak for a long time. This ongoing fragility has fed back into the Euro’s appreciation in the currency markets. Analysts agree that the current trade wars and deficit obsession plaguing the US economy play a large role in creating this dynamic.
In another positive sign, the GBP/USD currency pair retreated from its multi-year highs. Having achieved a daily high of approximately 1.3470 on the day, it closed and found a settlement in the vicinity of the 1.3400 handle. Increasing inflation The UK’s annual Consumer Price Index (CPI) inflation made a dramatic leap in April, spiking to 3.5%. That’s up from 2.6% in March.
“GBP/USD retreats from multi-year highs, stays near 1.3400.” – FXStreet
In the backdrop, gold prices broke higher on Wednesday, trading back above $1,830. Fear of rising conflict in the Middle East is the biggest factor behind this sudden increase. Environmental activists worry armed confrontations would intensify and eventually be aimed at Iran’s nuclear facilities. As market participants respond to ongoing geopolitical uncertainties, gold has become a go-to haven asset, adding to the current upside momentum.
At the same time, the US Dollar comes under increasing pressure as these events transpire. Consequently, investors are rushing to alternative assets such as gold and the Euro for safe haven. Combined with trade tensions and fears over US fiscal sustainability, you’ve got a very challenging environment for the Dollar. The net effect is that the Dollar cannot buy a break against its major currency competitors.