The British Pound (GBP) has recently soared against the US Dollar (USD), surging over the key psychological level of 1.3500. This is particularly true of the GBP/USD pair which is rallying hard on optimism. This huge spike is simply because the US Dollar resumed its recent weakness, following the release of July’s weak US Retail Sales report earlier this week. As of this writing, GBP/USD is trading slightly under 1.3550. On the whole, it’s a very positive landscape for the pound so far.
The USD is trading lower post release of the US Retail Sales data. Yet, even though the numbers exceeded expectations, they did nothing to increase confidence in the currency. Consequently, the Dollar’s offered tone has afforded GBP the opportunity to take full advantage of it. Market analysts believe that this will be the case for the foreseeable future, as long as skepticism towards the US Dollar continues.
The Euro (EUR) continues to remain under the key 1.1700 level versus the USD. Still, it stubbornly refuses to give up its day gains. The EUR/USD pair has proven remarkably resilient in its navigation around this barrier, suggesting that the original market dynamics lie not too far beneath the surface. The Euro has yet to close above 1.1700. It is gaining momentum fast as the US economic situation continues to evolve.
The prevailing market mood is one of a US Dollar bear market revival. This trend carries implications for other commodities as well, most notably gold. Gold prices are now held under $3,350 per troy ounce. Investors are skittishly looking at the overall economic picture, creating a very sidelined sentiment in the market. On Friday, gold likely reacted to small upticks in US yields across the curve, which tells us that market participants are still a bit gun shy.
Market analysts are likewise watching intently how geopolitical developments may affect currency and commodity prices. Newspapers are warning that former President Donald Trump’s trade war is about to heat up. Strong markets and a strong US economy are harbingers of growing trade friction. Such counterfactuals are dangerous to speculate about, like falling off the proverbial cabbage truck, flat out unsafe in fact.
If US trade tensions escalate further, the resulting impacts could be very severe. Black estimates that global output will fall by about 0.7 percentage points in the medium term. Vander Naald, which further illustrates the negative impact of continued trade conflicts that can further harm domestic and international markets.