During the early Friday trading sessions, the GBP/USD major currency pair whipsawed violently. The catalyst for these moves was the unexpected news of the 0.4% increase in UK manufacturing data. Initially, the duo was turned away at the 1.3475 level before pulling back to session lows just below 1.3450. Interestingly, the Japanese yen has shown remarkable strength in that same currency pair. In fact, during the early Asian session, it has continued to gain strength, touching just shy of 1.3480.
After a modest rebound, GBP/USD has fallen sharply on the daily chart. This tumble comes on the heels of a shock downward revision of the UK’s December S&P Global Manufacturing PMI. Sentiment on the market is turning, with growing fears over the health of the UK manufacturing sector. This turn has major ramifications for the broader economic picture. The interbank exchange rate remains within its weekly trading band. It holds above the key 1.3400 mark, a sign of strength given its context in this period of large volatility.
Early Trading Dynamics
In the early trading hours on Friday, GBP/USD tried valiantly to cling to its newfound bullish momentum. It was last trading closer to 1.3470 during the Asian hours. However, as the London session opened, the pair saw some resistance and was quickly rejected at the 1.3475 level. After this rejection, an important moment in the long-term chart, price quickly lost momentum and fell straight towards 1.3450. Traders watched these yields more than any others because they indicated the direction of the overall market and were driven by economic data.
As these developments continued playing out, GBP/USD fought back to gain ground once more, climbing back to just above 1.3480. For those who look beyond the initial kneejerk reaction, there is underlying strength in the Pound Sterling at least against the US Dollar. Fuelling this resilience is the hope that the US Federal Reserve will soon change its hawkish monetary policy stance.
Impact of Economic Indicators
A major source of GBP/USD’s poor performance was the much worse-than-expected downward revision of the UK’s S&P Global Manufacturing PMI for December. These types of adjustments can seriously change how the market perceives a nation’s economic wellbeing and even impact currency values. This is the negative sentiment from this data that has created a very bearish outlook for the pair. Technical analysis indicates a weakening bullish bias.
As seen on the daily chart GBP/USD is currently floating just under the lower boundary of an ascending channel pattern. This position makes its path even more convoluted. The currency pair is attempting to trade above its nine-day Exponential Moving Average (EMA) at 1.3450. This development creates a tricky balancing act between short-term resistance and support.
Broader Market Influences
The US Dollar is now feeling the effects from the expectation for these rate cuts from the US Federal Reserve this year. Consequently, the Dollar is tanking relative to the Pound Sterling. Expectations of such monetary policy can move markets by changing investor sentiment and increasing or decreasing demand on currency pairs. As market participants price in these developments, GBP/USD will continue to be a key market to watch for traders looking to profit from today’s uncertain environment.
The dynamic of economic data releases, chart patterns, and Bank of England expectations still remains the perfect storm for GBP/USD. As we move deeper into this trading week, the impact on currency fluctuations and overall market movements from all these factors will be closely watched by market participants.