The GBP/USD currency pair has hit its lowest level in nearly three weeks, trading below 1.3450 amid shifting market dynamics. The currency pair has made four days of increases for a second straight day. It soon did an about-face and dropped even more towards the 1.3400 psychological support. This downturn is a manifestation of the persistent bearish pressure and illustrates the vexing forces at play in today’s economic environment.
GBP/USD had found some renewed strength in recent trading sessions, though such optimism was quickly dashed. After a brief recovery, the pair has continued to plummet, illustrating the effects of this unusual volatility in the forex market. The cause, according to analysts, is a renewed strength in the US dollar, which is leading to this reversal. This wave isn’t just riding the wave of positive investor sentiment.
The negative tone towards GBP/USD has been deepened by business sentiment data from Germany turning up dismal. This data not only adds pressure to the Euro, but indirectly puts pressure on the British pound. Consequently, the combination effect of the Euro weakening and the subsequent strength of the USD adds to the downwards pressure of GBP/USD.
US market observers point out that the widespread risk-off sentiment taking over financial markets has strengthened the US dollar. When the world becomes uncertain, investors tend to move towards safer assets. This kind of behavior changes the fundamentals behind the currency dynamics and pushes down the GBP/USD exchange rate. As a result, the currency pair has struggled tremendously to mount any sort of rallying pressure.
With GBP/USD heading below key support levels, traders will need to be on high alert. Given the ongoing tussle between sentiment and every positive/negative economic data release, sentiment will continue to play a key role in driving sharp swings on the currency pair.
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