This past Thursday, the British Pound (GBP) suffered its largest one-day fall ever against the US Dollar (USD). It pierced through the key 1.3500 barrier. The United States recently celebrated a remarkable GDP growth of 3.3% for the second quarter. This overwhelming beat was deeply outside the market expectations and played a part in the drop that would come the next day. The GBP/USD cross advanced first to a session high of 1.3526. Then just like that, it lost all its steam again, mirroring the overall market and investor sentiment.
In today’s trading, GBP/USD was trading right under the big round number of 1.3500. Along with the broader dollar index, the Greenback came under pressure from dovish Fed-related expectations. As mixed economic signals began to appear, it lost its momentum. The combination of solid US growth and positive easing in inflation dynamics wasn’t enough to support the Dollar. This caused the Dollar to weaken against all currencies.
In the foreign exchange space, the US Dollar Index (DXY) tracks the Greenback’s performance against a basket of six significant currencies. During trade earlier in the session it fell to an intraday low of 97.84. This persistent decline represents the fundamental headwinds the Dollar is still fighting to regain the 98.00 figure. Analysts attribute this pressure to a combination of cautious market sentiment and traders’ anticipation regarding future Federal Reserve monetary policy decisions.
The dramatic recent swings in the GBP/USD currency pair illustrate the new market view’s laser focus on the next major economic release. Traders are most focused on this Friday’s release of the July Personal Consumption Expenditures (PCE) inflation report. This information is poised to deliver much stronger signals from the Federal Reserve as to their monetary policy direction. Beyond this, it has the potential to greatly affect future currency shifts.
A look at the current trading environment reveals a double-edged sword of economic influences at play. The British Pound US Dollar began the week on a strong footing. Soon after, it sunk back below 1.3500, a powerful example of how fast market fundamentals can shift with fresh information. Most market and commodity analysts are now forecasting increased volatility to continue. Traders are continually but furiously working to reprice risk along the curve as they witness shifting economic data.