On Monday morning, during the early European trading session, the British Pound (GBP) was appreciating dramatically against the US Dollar (USD). Consequently, the GBP/USD pair was approaching the psychological support level of 1.3600. More recently, the US Dollar experienced its largest drop in decades. This decline represents a golden opportunity for GBP/USD to extend its recovery. The Euro (EUR) found strength as the EUR/USD crossed above 1.1550. Both short and long term traders are gradually moving their positions ahead of the Federal Reserve’s and the Bank of England’s scheduled policy announcements this week.
USD weakness has played an outsized role in the strength of both currency pairs. As analysts point out, this hard-swinging dollar continues to provide GBP/USD with welcome reinforcement. On the other hand, it has given EUR/USD breathing room to draw in new bids. Traders are preparing for a highly anticipated announcement from the central banks. At the same time, markets are moving to a more dovish tone, eliminating much of gold’s historical safe haven appeal.
Gold prices have oscillated wildly over the course of this period. Lately, they’ve jumped, hitting the highest level in six months. As of early European trading on Monday, gold had sunk back below the $2,400 level. This recent price action is just a consolidation phase after some monumental gains.
“Gold price consolidates recent strong gains to the highest level since April” – www.fxstreet.com/markets/commodities/metals/gold
Traders are still extremely bullish on gold’s underlining strength. Even with that dramatic decline, they continue to steer real and imagined risks in other markets. This confidence is a sharp departure from growing fears over escalating geopolitical strife. With the ongoing war between Israel and Iran, traders are understandably spooked.
Traders have priced up or down their positions awaiting important policy moves from both the Fed and BoE. The market’s attention is becoming more acute to how these announcements will directly affect currency movements. The Fed’s policy decision is scheduled for Wednesday, while the BoE’s announcement follows later in the week.
A risk on mood overall for equities has helped the GBP and EUR. This backing provides them the needed ballast to see through a strengthening dollar tide.
Speakers are traders who are successfully making their way through this challenging market maze. Or maybe they’re just ignoring the increasingly violent reaction in the Middle East. Such sentiments might be an indication that the markets are returning their attention to the effects of monetary policy and away from geopolitical instability for now.