The GBP/USD currency pair showed great strength during the European trading session on Wednesday. It turned around and defended its advances successfully, remaining stubbornly robust under the 1.3450 figure. This comes as very strong inflation data from the United Kingdom just came out today. As a result, this news has given a temporary boost to the Pound Sterling. The annual Consumer Price Index (CPI) inflation jumped to 3.5% in April, up from 2.6% for March. This rise indicates a possible uptick in economic optimism.
Despite this encouraging news, the GBP/USD pair has seen volatile trading and it’s still well off its highs. Renewed trade jitters meanwhile are weighing the waters on Pound. At the same time, worries about the long-term fiscal condition of the United States are on the rise. These factors have increased downward pressure on the US Dollar, shifting currency dynamics and affecting the GBP/USD exchange rate.
Last Friday, the US government’s sovereign credit rating suffered a blow from credit rating agency Fitch Rating. This leather hourglass has added further pressure on the Greenback, weakening it. In mid-April, weak economic activity out of China raised red flags around the potential for global economic turmoil. Such a turn of events would be likely to affect the GBP/USD exchange rate too.
Amid worries over the impacts of escalating U.S.-China trade wars, confidence in China’s economic prospects has been rattled. Consequently, a pronounced cooling has affected all sectors of the housing market. “China April slowdown shows the impact of economic uncertainty,” reported FXStreet. With increasing global economic interdependencies, this decline is likely to have a ripple effect on currency pairs like GBP/USD.
At the same time, gold prices have skyrocketed, reaching nearly two-week highs near the $3,320 level and looking poised for more upside. Gold tends to be a safe-haven asset. When it gets more expensive, it causes spillover effects on the valuations of other currencies, such as the Pound. “Gold price hits nearly two-week high around $3,320 area; seems poised to climb further,” stated FXStreet.
For a more wider market backdrop, the EUR/USD pair is sustaining gains under 1.1350 as US Dollar weakness continues. This trend is reflective of the current market sentiment, further supporting GBP/USD’s consolidation of gains during Wednesday’s trading.