The GBP/USD currency pair showed some other technical strength, trading back up near 1.3550 in Wednesday’s European session. This movement is further reflected by an increasing risk-on sentiment across the market. The announcement of a bilateral trade deal between the US and Japan was enough to pump this optimism way up.
Markets Optimism over the US-Japan trade agreement then gave support to the higher-yielding Pound Sterling. US President Trump hailed the agreement, which imposes a 15% tariff on Japanese cars imported into the US. So positive has the signal from this development been to investors that demand has surged for the British pound.
By comparison, the EUR/USD was headed to the downside on the move, dropping back toward 1.1700 as the US Dollar caught a bid. The change in the euro was significant, as the single currency retreated from two-week highs of 1.1761 hit on Tuesday, reflecting a turnaround in intra-market dynamics. On Wednesday morning in Europe, the EUR/USD was approaching the 1.1700 level. This larger movement reflects the shifting sentiment among investors towards a stronger dollar.
The volatility in these currency pairs is a window into the deep interconnectedness of today’s global markets. They further illustrate how extraordinary geopolitical events can heavily influence currency valuations. As the trade landscape improves, ushering in renewed risk appetite, higher-yielding currencies such as the Pound Sterling tend to perform well. At the same time, safe-haven currencies like the dollar experience an increase in demand.
The trade deal’s specifics, including tariffs and economic cooperation, are expected to play a crucial role in shaping market expectations moving forward. For now, analysts expect further information to emerge to shed light on what the US-Japan deal will mean. In particular, market participants will be eager to see how this affects the GBP and EUR vs the dollar.