The GBP/USD pair saw some positive traction in morning trade in Europe on Monday, advancing towards the 1.2950 level. US dollar index has tanked in historic fashion. This shift has happened largely because fears over US reciprocal tariffs have evaporated. All signs suggest that these tariffs will be much narrower and less stringent than first anticipated. This development should give global risk sentiment a modest lift.
This temporary reduction in trade-policy uncertainty has helped further improve global market risk sentiment. Consequently, this transition is causing concern on the status of the US Dollar. The EUR/USD pair stays positive throughout Monday trades, around 1.0850 in the EU session. It’s notable, though, considering the pair’s three-day decline, marking a possible change in market direction.
Buyers are buoyed by the diverging trajectories of the Federal Reserve and, to a lesser extent, the Bank of England (BoE). Tightening monetary policy expectations have built a supportive base for GBP/USD buyers given the stark contrast between the two central banks. Furthermore, the recent breakout above the 200-day Simple Moving Average (SMA) acts as an additional confirmation for this bullish bias.
Market participants are similarly counting down to next week’s events, which will determine the near-term direction of currency markets. The speech by BoE Governor Andrew Bailey is highly anticipated, as it may offer insights into future monetary policy direction. Furthermore, key economic indicators such as UK/US Purchasing Managers' Indexes (PMIs), inflation data from Tokyo and Australia, and the UK budget and Consumer Price Index (CPI) are set to capture investors' attention.