On Monday, the GBP/USD currency pair, commonly known as ‘Cable,’ put in an impressive reversal. It went printing higher again above the 1.3550 level. With this increase, the June trading is off to a great positive start. It is driven by positive market sentiment towards the Pound Sterling and the long-lasting trade tensions that are still affecting the US Dollar. Pound picked up hefty support in Q1 and Q2 of 2022. This jump was largely driven by increasing optimism over the Bank of England’s forthcoming Monetary Policy Report testimony.
The recent fluctuations in GBP/USD, which accounts for 11% of foreign exchange trading, highlight the dynamic interplay between economic indicators and geopolitical developments. The markets have been buoyed by the traders’ optimism about the UK’s economic prospects. Increasing US-China trade tensions are making their own mark on currency markets.
Trade Frictions and US Dollar Weakness
President Donald Trump Tweeting in personal frustration about China’s slow approval time of rare earths to the US. This unexpected delay has further increased friction between the two countries. In a fiery speech at a United Auto Workers union rally last Friday, Trump touted his intention to double tariffs on all US steel imports to 50%. This strategic move is meant to put the squeeze on China.
China’s initial reaction was decisive. They remained adamant that they are still committed to the export approval timelines that were signed in Switzerland. Chinese officials have accused the US of breaking its trade pacts. They cite as proof new and broad restrictions on tech exports specifically aimed at their country. Publications ongoing trade disputes are the anchors pulling down the value of the US Dollar. Market participants are understandably overreacting to the uncertainty caused by the threat to international trade relations.
Protectionist trade policy fears are rising. Speculators of GBP/USD are rushing into bullish trades, convinced that the Pound Sterling’s upward momentum will persist in the face of these outside influences. The move marks a similar shift in the BoE from aggressive rate cuts. This change makes the UK a slightly more attractive place for global investors, thanks to those higher interest rates.
Cable’s Positive Momentum
Unsurprisingly, the recent price action of GBP/USD is indicative of such strong upward momentum. …although bids are exceeding not only the upward trendlines but the 200-day EMA, which is now above 1.2900. The CAD/JPY dance du pair is on a bull run, retaking chart real estate above the 1.3500 mark. … and inspection bids closing in on setting new two-year highs as they get closer to 1.3600.
The bullish sentiment for the Pound Sterling is based on positive interest rate projections. On top of that, the prevailing mood about the economic situation in the UK feeds into this optimism. With traders now betting that the BoE will raise rates and keep them high for longer, optimism for the currency is building. The BoE has gone on record to promise more than one rate cut this year. As a result, this dovish monetary policy stance could lift the Pound.
Furthermore, with global investors looking for safe haven assets in an environment of protracted trade tensions, the UK’s economic strength starts to look a lot more appealing. Increasing investor interest in the UK is sending the GBP/USD steadily higher. It guides us with great skill around dangerous perilous market conditions.
Outlook for GBP/USD
Traders are understandably excited to see how the state of trade relations move between the US and China. They are keenly watching for further announcements from the Bank of England. Closer to home, international markets are in a state of extreme volatility. This underscores how important it is to recalibrate trading strategies in response to macroeconomic conditions and geopolitical developments.
GBP/USD remains well supported above the 1.3550 level. Market participants are definitely on the lookout for any signs that sentiment is about to shift, which would have a dramatic impact on the pair. With asks situated around important resistance levels, additional upside could be attained if the bullish momentum continues.