GBP/USD remains capped at recent highs but continues to firm underneath the key 1.3450 level. At the beginning of the European session on Wednesday, this trend continues. The currency pair remains incredibly resilient. This comes on the heels of surprisingly positive UK inflation data, which has provided a temporary boost to the Pound Sterling.
The recent inflationary figures from the UK indicate that the year-on-year Consumer Price Index (CPI) inflation rate rose to 3.5% in April. This is up for a big leap from a rate of 2.6% in March. The recent dramatic increase in inflation has strengthened the Pound Sterling. Consequently, GBP/USD has managed to withstand the pressure amid the wider economic malaise.
A perfect storm, really Weather conditions have conspired to create the ideal environment for GBP/USD to hold its new found strength. The bullish UK inflation data comes as the main catalyst, providing a ray of hope for the bullish currency. Worries about US fiscal sustainability continue. At the same time, a recent downgrade to the US government’s sovereign credit rating is adding further downward pressure on the US Dollar.
It’s no wonder that market analysts have noticed a wave of renewed trade jitters. Combined with worries over the fiscal health of the U.S., these events have pressured the dollar. This USD weakness is being felt in all currency pairs, and GBP/USD is certainly no exception here.
The EUR/USD currency pair is continuing to trade firmly below the 1.1350 level. This trend is in line with the overall forex market due to the weakness of the US Dollar. Many analysts argue that this wider context has contributed to GBP/USD’s relatively impressive performance here.
Gold prices recently shot up to an almost two-week high, hitting above the $3,320 threshold. This wave threatens to make them go much higher still. The bullish effect on gold prices may play an indirect role in supporting GBP/USD as investors adjust to an evolving economic landscape.
China’s current economic realities complicate matters even further. Recent reports indicate that an April slowdown in China highlights the impact of economic uncertainty, which could ripple through global markets and influence GBP/USD dynamics.
“China April slowdown shows the impact of economic uncertainty.” – www.fxstreet.com
Traders are eagerly and nervously watching these developments. They are leery of the negative effects from slowdowns in key economies and increasing trade tensions. Of course, economic uncertainty and trade relationships are key drivers impacting currency valuations. This especially applies to the GBP/USD exchange rate, which is sure to be greatly affected by these evolving developments.