The GBP/USD currency pair has made this impressive winning streak six days long. After breaking through the 1.3250 level on Wednesday’s European session, it achieved its highest print since the month of October. This increase occurs as a result of the massive drop in the value of the US Dollar. Preoccupations with a worsened US-China trade war and a definite stall in the European Union-United States trade negotiations are fueling this state of affairs. As traders keep a watchful eye on upcoming consumer data from the US and a speech by Federal Reserve Chair Jerome Powell, market dynamics remain fluid.
Over the course of this last week, GBP/USD has shown extraordinary strength, and this is a clear sign of returning investor optimism regarding the British Pound. The pair’s ascendancy past the 1.3250 level constitutes a psychological barrier that only adds to its bullish outlook. The strength of the Pound is very much an illusion, driven by three key factors. Relaxations in foreign trade relations and an increase in macroeconomic indicators point to an encouraging economic outlook for the United Kingdom.
A key force behind this price surge has been the renewed weakness of the US Dollar. Long-term trade anxieties due to the US-China trade war continue to push investor caution. Consequently, many are moving beyond the greenback. Uncertainty related to trade tensions have produced outsized, but often short-lived, impacts on currency markets. They’ve contributed to fears about global economic growth, leading investors to slash demand for riskier assets. As such, this environment has benefitted currencies such as the British Pound, which has enjoyed relative strength during these stormy waters.
Nevertheless, analysts caution that recent upside could prove fleeting and bullish GBP/USD momentum may be short lived. The current trade war threatens to undermine its very foundation. Tensions over trade, technology and security. The complexities of the ongoing dispute between Washington and Beijing are sure to prove dangerous currents for traders. Traders are very much aware of what’s happening on the outside. They understand that EU-US trade negotiations would deeply impact currency valuations in the short run.
For now, it’s a wait and see approach as the market waits to see the next piece of US economic data. Fed Chair Jerome Powell’s testimony will provide some color on the state of the US economy. Traders will especially be watching indicators like consumer spending and inflation rates. These indicators would have a major impact on the Federal Reserve’s monetary policy moving forward. Should Powell strike a hawkish tone, we may find the US Dollar rallying in response. This reversal may reverse the recent gains GBP/USD have achieved.
At the same time, EUR/USD has made even more impressive gains so far on Wednesday in European trading. Support for the pair remains strong above the 1.1350 line. This aforementioned strength is a sign of strong demand for Euro as global market uncertainties persist. Much like GBP/USD, EUR/USD’s upward movement can be attributed to broader concerns regarding the US Dollar’s performance and shifting investor sentiment.