GBP/USD continued to hover weakly under the 1.3400 level during European trading on Wednesday. Traders have all eyes on some key economic data coming out of the US. They are especially looking at jobs data, GDP figures and PCE inflation reports, as all of those are poised to have a much greater impact on currency movements.
The GBP/USD currency pair continues to have difficulty finding a bottom. Traders have remained on the sideline in a cautious stance as focus narrows to key data releases. The duo has found it difficult to build on this momentum, indicative of market concern over the data that looms ahead. Analysts do not expect much upside for GBP/USD under the present conditions. Currency market investors are bracing for the effects of a stream of key US economic reports that lie ahead.
Just last week, the United States reported that the GDP contracted by 0.3% in the first quarter. This contraction was at an annual rate. This contraction has raised concerns among economists about the potential slowdown in the US economy, which could influence the Federal Reserve’s monetary policy decisions moving forward. The surprise negative GDP announcement this past Thursday has alarmed many. The very high PCE inflation number is supercharging the US dollar, capping any possible rally for GBP/USD.
The PCE inflation data, which has consistently indicated rising consumer prices, can directly affect the Federal Reserve’s stance on interest rates. An increase in the inflation rate would usually lead a central bank to decide to raise the short-term interest rate, which would appreciate the currency concerned. The surprising overall positive PCE reading has sent significant headwinds GBP/USD way. This has kept it from being able to break back above that all-important 1.3400 level.
Market observers are watching to see how these economic indicators play out. Their results will help set the tone for the pound and the wider market. Creating an environment where on one hand, we have a contracting GDP and on the other hand, strong PCE inflation creates a volatile environment for traders. The risk for additional volatility is increased as market participants reassess their positions leading up to these critical announcements.