The foreign exchange market has never witnessed such upheaval. The GBP/USD currency pair has reached its lowest point since early August, dipping below the significant level of 1.3400. The drop continues all day long. It’s a maw largely created by reawakened jitters in the UK bond market, where spiking long-dated UK gilt yields are crushing the British pound.
As investors continue to tread with caution, this response from the crazy UK bond market turmoil has caused a rather steep drop in GBP/USD. Unfortunately, the pair’s decline just mirrors an overall risk-averse mood in financial markets. At the same time, the EUR/USD doesn’t have an easier path to the upside either, as it remains under heavy bearish pressure below 1.1650. These recent developments serve to underscore the interconnectedness of currencies, and how they respond to fundamental macroeconomic forces.
Not only have the higher long-dated gilt yields rattled market sentiments and made them more jittery, but directly affected GBP/USD. Analysts are understandably keeping a watchful eye on a quickly changing situation. They’re especially looking ahead to the next set of economic indicators as all eyes turn in the market. Traders are intensely focused on the US ISM Manufacturing PMI report. Among other things, they want to determine how it might affect the US dollar.
At a time of immense uncertainty and volatility in the currency markets, gold is well-positioned as a haven asset. The treasury and precious metal just last month hit an all-time high, crossing the $3,500 per ounce barrier. Gold pushed to a new yearly high before turning lower, although prices remain firmly in the black. Its attractiveness in a risk-averse climate is what makes it truly dangerous. The powerful recovery of the US dollar has clearly capped gold’s upside potential, but this hasn’t weakened gold’s overall strength.
Market analysts herald the June jobs report, the Consumer Price Index and other Program Level economic figures. “All eyes on NFP report as Fed rate cut bets intensify,” reflects the prevailing sentiment among traders as they prepare for potential shifts in monetary policy.
The frothy trading climate charges the political atmosphere around President Trump’s administration with already-difficult-to-manage expectations about economic performance. The shocking new July payroll numbers have ignited a debate even within the administration about his record on the economy, making the market jittery even more.