The GBP/USD currency cross consequently began the new week on the back foot, drifting under 1.3300. The duo is going through a slump. This release comes on the heels of Friday’s modest recovery, where GBP/USD was able to bounce back from near the 1.3200 handle. The 1.3200 level is important in that it now serves as the new three-week low for the pair.
On Sunday, the United States and China announced a new trade deal. This deal followed dramatic round-the-clock negotiations in Switzerland over the weekend. This development has led to a sharp strengthening of the US Dollar (USD), which has put additional downward pressure on the British Pound (GBP). The new US-UK trade agreement, signed last Thursday, temporarily boosted the GBP as well. Market conditions change dramatically in the intervening time.
In the long Asian trading session, spot prices for GBP/USD held within a few pips of that 1.3280-1.3275 support zone. This move represented a -0.20% change on the day. This increasing USD strength is shown in the downturn on the chart above. Consequently, sellers are rushing into GBP/USD prompted by fears of a looming US recession.
So there is a lot of caution priced into GBP at present. BoE cautious tone seems to be limiting GBP/USD downside. The BoE’s hawkishness hasn’t just led traders to remain on their guard. They are reticent to commit to any hawkish policy as they wait to see a definitive short-term trend for currency pair.
Market participants are still parsing the broader implications of these recent developments. These readers are being particularly watchful of the recent, range-bound price action of GBP/USD. These three factors converge in ways that call for traders to proceed with extreme caution. They’ll need to tread lightly in this extremely hot trading environment, and special care should be taken with the currency pair.