On a wide scale, currency traders were heavily adjusting their positions on Monday in the currency markets. They were preparing for key policy pronouncements from the Federal Reserve (Fed) and Bank of England (BoE). This comes amid the continued flare up of tensions in the Middle East, with the EUR/USD pair still rallying above 1.1550. At the same time, GBP/USD rose towards 1.3600, aided by a recent US Dollar downtrend.
In European trading, EUR/USD attracted some fresh, bullish momentum as the pair surged back above the 1.1550 figure. The latest round of dollar selling has US-Dollar bears in the driver seat. In light of this profound shock, traders are recalibrating their strategies. That reality, paired with the escalating war on Hamas between Israel and Iran, is deeply alarming. Markets appear to be tuning out these geopolitical firestorms as they await important monetary policy announcements later this week.
It was a similar story across the Atlantic with GBP/USD recovering and moving further back up towards the 1.3600 mark. The pair benefited from the weakening US Dollar, which has lost ground amid shifting market sentiments. Uncertainty is pushing traders to remain more conservative. They are following with concern the growing conflict in the Middle East, given its potential effect on global economic stability.
Worries about a possible government shutdown are overshadowed by the market’s laser-like focus on the Fed’s next policy decision, due Wednesday. Currency analysts weigh in, providing their predictions on how the Fed’s focus on interest rates and forecasts for U.S. economic growth will weaken or strengthen currency valuations. The BoE is about to make some major policy announcements as well. These decisions will further weigh on GBP/USD and inject more volatility into currency markets.
Speculators are trying to reckon how the escalating Middle East hostilities should weigh against their convictions about the subsequent course of monetary policy. Geopolitical risks may be daunting, but the enthusiasm is palpable. All eyes are looking towards central banks to see how they will respond to this unprecedented economic crisis. The renewed US Dollar downtick has provided an opportunity for both EUR/USD and GBP/USD to gain traction in the market.
As the week continues, all eyes will be on market participants. They’ll be analyzing big geopolitical changes as well as major shifts in central bank policy. Which of these factors is dominant, and how they interplay will certainly determine currency trends in the short run.