Meanwhile, the GBP/USD currency pair has dropped for the third consecutive week. This drop is mostly the result of risk aversion caused by recent comments made by United States President Donald Trump. As investors started to react to these political unknowns, the US Dollar strengthened, adding additional pressure on the British Pound. For that reason, the GBP/USD seems to be resilient staying above the critical bullish 100 Simple Moving Average (SMA). If the couple succeeds in reclaiming the 1.3500 handle, it brings the possibility of a deeper recovery into play.
A string of recent economic data from across the pond has only added fuel to the fire for the underdog British Pound. Most recent major employment and inflation releases have come in well below market forecasts. This growing shortfall has put the UK’s economic fragility on the radar of UK investors. The combination of risk aversion favoring the US Dollar and tepid UK economic indicators has left the GBP/USD pair aiming for lower lows.
Economic Indicators Weigh on Sterling
The most recent data from the UK’s Office for National Statistics indicates an increase in the ILO unemployment rate. It is now up 4.7% for the three months ending in May. This figure topped all market expectations that were forecasting a 4.6% rate. The disappointing employment numbers that have sparked new fears of a double dip have heightened fears of new hits to consumer confidence and spending.
Further compounding the Sterling Pound woes, inflation measures have not offered any relief. Looking across the economy, the annual change in the Producer Price Index (PPI) rose to 2.3% in June. Nonetheless, this uptick was smaller than the anticipated 2.5% increase and represented a decrease from the previous 2.6% reading. These findings have contributed to an increasing mood of panic over the UK’s economic prospects. This is putting the GBP/USD pair under greater pressure.
Still, the Consumer Price Index (CPI) showed a lot of wild movement in June. It increased by 3.6% y/y, an acceleration from May’s 3.4%. This increase at first glance appears positive. It poses deeper questions about economic stability as unemployment rises and producer prices have become static or deflationary.
Technical Analysis Indicates Possible Interim Bottom
From a technical analysis standpoint, the daily chart indicates that GBP/USD has found an interim bottom. Its positioning above the bullish 100 SMA bolsters the case for the pair. Though GBP/USD needs to bounce and hold above 1.3500 for this to truly validate this bottom.
If GBP/USD breaks below the makeshift support level of 1.3360, we may be able to watch it fall off a cliff. Such a decline could take it below the 1.3300 level, a major psychological barrier. Further weakness could push prices lower towards the 1.3220 area. This has created further risk for traders that may be long on the pair.
The flat shape of the 20 SMA lies above the prevailing GBP/USD price. Barring a dramatic turnabout, the downward pressure is expected to persist. This technical setup is a microcosm of greater market fears and the prevailing theme of fear over greed for traders.
Market Sentiment Influenced by Geopolitical Factors
After President Trump’s controversial comments last week, risk aversion has reached a fever pitch in financial markets. This change is chasing up the demand for US Dollar whereas it has badly influenced other currencies including the Sterling Pound. As such, traders are getting more jittery about rising geopolitical tensions and their impact on the global economic picture.
Investors have closely monitored US economic policy and relations with China and other global players. Even hints of a return of volatility would be enough to move currencies dramatically. The recent climate has highlighted the important role that external factors can play in the domestic currencies slate.
The GBP/USD pair is undergoing wild gyrations nearly every day. These challenges come in the context of UK economic indicators and a broader market sentiment influenced by US politics. Traders should do their part to stay alert as they tread through this ever-watchful environment.