Pound Sterling (GBP), the world’s oldest currency, is crashing under the 1.3300 barrier. This decrease in value compared to the US Dollar (USD) is very significant. The Pound, which first came into circulation in 886 AD, is the current official currency of the United Kingdom. Globally, it accounts for roughly 12% of all foreign exchange transactions. What recent data from the trading desk shows is that the Pound’s most important trading pairs are GBP/USD, which represents around 11% of the foreign exchange market. In addition, GBP/JPY accounts for 3% and EUR/GBP 2%.
This correction arrives, no doubt, as the threat of a new global trade war looms, threatening to suppress the United Kingdom’s economic prospects. Market participants are widely anticipating the next US Manufacturing Purchasing Managers’ Index (PMI) report. They are perhaps most importantly watching the Pound’s performance against its nearest peers. Analysts are still bullish on the Pound’s long-term prospects against the Dollar, despite the sharp drop yesterday. As seen in our short-to-long EMAs, all of them agree that the trend is upward.
Market Dynamics and Economic Indicators
The Pound Sterling powers a stunning average of $630 billion in daily foreign exchange transactions. This information certainly paints a picture of what 2022 trends look like. On Tuesday it hit a three-year high of 1.3445 against the Dollar before hitting the correction phase. Market observers note that the key round figure of 1.3600 will be an important obstacle for GBP/USD in coming sessions.
The 14-day Relative Strength Index (RSI) for the Pound languishes between 40.00 and 60.00. This positioning represents the neutral position traders take. Its standing against the major currencies has suffered a blow as well. This is particularly true to euro dollars peers such as Euro or Australian Dollar although it softened slightly against Japanese Yen.
Per Andrew Bailey, the Bank of England’s Governor, risk to growth on the downside has become a predominant issue. He stated, “We do have to take very seriously the risk to growth.” This feeling is widely felt across the market as stakeholders continue to navigate challenges from global economic changes.
Trade War Fears and Market Reactions
The not-so-distant threat of a global trade war have only made matters worse for the Pound. Analysts have cautioned that the deepening trade dispute would be disastrous for the UK’s economy. Such an event would markedly erode consumer confidence and consumer spending.
In this context, Jamieson Greer, a prominent economist, commented on forthcoming trade deals, stating, “Initial trade deals are to be announced in weeks, not months.” While the promise of speedy solutions might be better news, the mood among traders is still skittish.
A report from S&P Global highlighted that producers are beginning to “hike their selling prices at a pace not seen for over a year,” which could lead to higher consumer inflation. Inflation could limit the Federal Reserve’s ability to cut interest rates. The US economy is clearly in need of a shot of stimulation, and this restriction would just contribute additional pressure to an already accelerating economy.
Support and Resistance Levels
The technical analysis of GBP/USD has led me to an important conclusion. The April 3 high near 1.3200 may serve an important function as a support pivot in this corrective, if necessary. For this reason, traders will want to keep a close eye on this level. It might determine the ultimate direction of the Pound against the Dollar.
Market commentators continue to hold a generally bullish view for GBP/USD. The upward trajectory indicated by various EMAs suggests potential recovery in subsequent trading sessions as market conditions stabilize and economic data is released.