On Thursday and Friday last week, the foreign exchange market saw historic swings. The GBP/USD moved above the 1.3700 level, gaining for four straight sessions. This continuation of strength in the British pound is remarkable, particularly as it moves adding up to new multi-year highs. Traders are focused on the catalysts behind these moves. They are especially looking at geopolitical tensions, shifts in U.S. monetary policy, and the strength of the dollar more generally.
The GBP/USD is holding strong above the 1.3700 figure. This represents a deepening string of increases that has spanned a week. Analysts from FXStreet have noted, “GBP/USD stays firm above 1.3700, near fresh multi-year highs.” This is great momentum even with increasing concerns about the independence of the U.S. Federal Reserve. These fears have only increased in light of President Donald Trump’s hints that he might attempt to replace the head of the Federal Reserve, Jerome Powell. Market participants are understandably spooked by the potential for this type of change. Perhaps they fear the adverse consequences on the independence of central banks.
Complementing this environment, the EUR/USD pair is resting near 1.1700 and approaching their three-year obscured highs. The U.S. dollar is going down. Most of this decline is attributable to President Trump’s unhelpful statement last week calling into question the independence of the Federal Reserve. This feeling of uncertainty has contributed to a lot of speculation around future Federal Reserve policy and how that will affect exchange rates.
As if inflation and supply chain issues weren’t enough, we have geopolitical tensions complicating market dynamics. The Israel-Iran proxy war has escalated as well, heightening concerns over regional stability. The Strait of Hormuz is the world’s most important maritime chokepoint, located between Iran and Oman and the United Arab Emirates. Its potential closure would send shockwaves through global markets, so it is operating under a microscope. Financial markets are abuzz with speculation that Iran could attempt to close this critical choke point. This possible move would set off even more extreme swings in oil prices.
With U.S.-Iran relations highly combustible, and oil markets already jittery from an ongoing supply imbalance. Recent U.S. military strikes in the region add to those worries. This inflection point has ignited fevered speculation. Others worry about the impact on supply in the event of a major disruption, such as if the Strait of Hormuz were to close.
In response to all these developments, gold prices have held firm, displaying a slight positive bias for the second day in a row. Gold prices trade under $3,350/oz. Due to the general weakness of the U.S. dollar, it continues to attract investors looking for a safe-haven asset. FXStreet analysts commented on this trend, stating, “Gold price retains its positive bias amid a broadly weaker USD; lacks bullish conviction.”
They’ll be looking for important upcoming economic data from the United States. They are seeking to glean clues from the Bank of England (BoE) that might dramatically move the currency. The interplay between economic indicators and central bank communication will be crucial in guiding investor sentiment in the near term.