The GBP/USD currency pair remains one of the strongest trading pairs today, and is now resting near daily highs around 1.3540. A few factors fuel this increase. The Phase I trade agreement reached between the United States and China and negative inflation figures out of the U.S. are probably the two biggest factors. All three of these elements have worked together to produce a comparatively weaker U.S. dollar, thus lending the British pound support from their end.
In past sessions, GBP/USD has been firmly well bid, demonstrating markets’ renewed faith in the face of changing economic data. The recent U.S.-China trade agreement may have overtaken them all by dramatically changing the market dynamics. It supports risk sentiment and in turn, it weighs on the greenback. The deal marks another step in assuaging trade tensions. This tends to support currencies associated with a greater risk appetite, such as the British pound.
Back in May, U.S. Consumer Price Index (CPI) data surprised to the downside. To the extent this has been a surprising change, it has been through further weakening the dollar. Analysts had been looking for a hotter inflation report, but no such luck. This unforeseen consequence is a double-whammy on GBP/USD, since weakness in the greenback usually gives other currencies more room to run.
As GBP/USD flirts with daily highs near 1.3540, it is essential to consider how these economic indicators influence market sentiment. Those lower-than-expected inflation numbers have hit the U.S. dollar hard. They have positioned the world for a gold price moonshot. With this move lower in the USD, gold has made an upside break, settling at about $3,340 per troy ounce.
The broader trading pattern of the GBP/USD pair is further influenced by day-to-day news from the U.K. Chancellor Reeves’ still very recent fiscal multi-year spending plans are still being digested by investors. Such scrutiny is particularly imminent given that a barrage of important U.K. economic information is scheduled to be released on Thursday. Anticipation surrounding this data may heavily impact which way GBP/USD goes next. Investors are closely challenging how it shapes into the wider financial climes.
EUR/USD has gained a similar gusto, eyeing the 1.1500 figure. The euro has recovered some impetus and is teasing with weekly highs through the 1.1480 area. This eurozone currency resurgence is demonstrative of a similar restoring faith between the major currencies as the global marketplace changes its tune.
We think positive sentiment is propping up GBP/USD right now. Nevertheless, all of market participants should be on the alert for future economic prints that may tip the balance the other way. The relationship of U.S. economic data and geopolitical developments will be key for currency traders operating in this environment.