After hitting milestone psychological levels on Monday and Tuesday, the GBP/USD currency pair rocketed for six consecutive days. On Wednesday in European trading, the pair stayed above the 1.3250 figure, hitting its highest level since October. This jump is the first symptom of a much bigger trend—continued weakness in the US Dollar. Continuing concerns over the US-China trade war and EU-US trade negotiation standstill are pushing this change.
FX strategists noted that a new round of selling pressure on the US Dollar is providing help to the GBP currency pair. This new development changed that and raised their interest. Moreover, uncertainties on the fate of international trade agreements still hang heavily. This is leading investors to favour currencies which they consider to be more robust and less vulnerable to geopolitical risk.
The US-China trade conflict continues to weigh heavily on global markets. While there was a concerted effort to reach a mutually agreeable resolution, talks have stalled and that has left the trader community on high alert. All of this uncertainty has significantly rattled confidence in the US Dollar. As a result, billions of people are now looking for alternatives and new currencies such as the British Pound.
Optimism persisted on Monday, leading into Wednesday’s key US consumer data. Everyone is looking forward to the highly-anticipated speech by Federal Reserve Chair Jerome Powell. Each of these events will paint a different picture of the economic playing field. In doing so, they can signal potential future shifts in monetary policy that would, in turn, lift the Dollar. Analysts warn that any disappointing data or dovish-sounding comments from Powell could easily push GBP strength momentum firmly back into trend.
In another interesting twist of fate, the EUR/USD currency pair showed strong volatility on Wednesday. The duo was especially powerful, the cross trading over 1.1350 in European markets this morning. This strong upward movement demonstrates the Euro’s resilience, as it has largely benefited from the same forces that have helped the GBP/USD pair.
Factors influencing the Euro’s strength include ongoing economic data releases and market sentiment surrounding the European Central Bank’s monetary policy stance. A strong Euro and a softening Dollar are establishing heady waters for volatile currency pair swings. Traders are watching these developments closely.
Even with the strong momentum in both GBP/USD and EUR/USD, upside is capped as fears over the trade war continue to linger. The new geopolitical landscape, combined with other factors are creating the perfect storm for market volatility. As always, this will leave traders on the defensive, carefully hedging their positions against uncertainty.