The world’s largest market, the foreign exchange market, is going through an unprecedented seismic shift. The US Dollar Index (DXY) is up 0.17% and now testing the 99.00 level. This has raised the DXY to its highest level in four weeks, creating a higher burden on the Pound Sterling (GBP). As of this writing, the GBP is at 1.3420 against the USD, down from around 1.3460 seen yesterday.
The Pound Sterling has continued to struggle in a month marked by significant turmoil, coming close to setting a new weekly low. The 1.3420 exchange rate Friday during the European trading session marks a tipping point for the currency. Analysts have pinpointed key support levels, with the key support at 1.3400 likely to hold strong.
US Dollar Index Climbs
Since the US Dollar Index has soared to almost 99.00, traders and analysts have clamored to explain the move. This increase is a reflection of the increasing strength in the dollar, which has recently experienced increasing demand driven by divergent economic conditions.
As of this writing, the DXY is at its highest level in a month. On that basis, it’s a remarkable performance! Just look at the dollar or euro as examples! The market is feeling the implications of this strength, most acutely on their main traded currency, the Pound Sterling.
Pound Sterling’s Current Position
During the last few trading sessions, the Pound Sterling has succumbed to this pressure with the currency trading close to its weekly low at 1.3420. The drop from 1.3460 seen yesterday underscores this growing vulnerability of the currency to the stronger dollar.
Even with this decrease, analysts are hopeful around important levels of support. UOB Group’s FX analysts, Quek Ser Leang and Peter Chia, noted that “the major support at 1.3400 is not expected to come under threat.” This is a largely stabilizing force for the GBP as it flows with the prevailing market trends.
Outlook for GBP/USD Exchange Rate
Indeed, market expectations are already pointing towards further weakness of the Pound Sterling despite its recent plunge. Analysts are expecting it to test that 1.3435 level any day now. This figure has the potential to be a key point of resistance in the coming weeks.
Forex traders will be watching these trends development as the GBP/USD currency pair continues to trade in this narrow band. The resilience of this key support at 1.3400 will be crucial in dictating the currency pair’s path in the days ahead.