The Pound Sterling has been on quite the run, striking a fresh three year high close to 1.3500 against the US Dollar. The Republican-controlled House of Representatives has passed President Trump’s replacement plan. Now, it has progressed to the Senate. The overall economic situation is precarious as well, with increasing worries about fiscal unsustainability in the U.S. As a result, this combination of factors has created a vulnerable state for the US Dollar.
On Friday, Pound Sterling’s showing the overall strength of the currency by beating down the US dollar. Some analysts pointed out that the near-term outlook for the GBP/USD currency pair is bullish thanks to some key economic indicators. The 20-day Exponential Moving Average (EMA) for GBP/USD is currently pointing upwards near 1.3320, trend-wise an encouraging sign. Furthermore, the 14-day Relative Strength Index (RSI) pierced above the important 60.00 mark, further extending bullish sentiment for the Pound.
Economic Indicators Influence Currency Valuation
The recent strength of the Pound Sterling can be pegged to a slew of economic measures that have outperformed the outlook. Today’s Institute for Supply Management Services Purchasing Managers’ Index (PMI) came in at 50.2. This outcome is just above the expected 50.0, indicating no growth in this important sector. At the same time, the Manufacturing PMI experienced an even steeper contraction, falling to 45.1 from 45.4 in April. While this divergence between sectors underscores the continued struggles with manufacturing, it fades slightly in the shadow of the good news we’re seeing from services.
Additionally, the Composite PMI unexpectedly rose to 49.4, above forecasted of 49.3 and an increase from 48.5 in April. This positive surprise is a further sign of a continuing rebound in lost economic activity and is helping to build overall bullish momentum surrounding the Pound Sterling. On top of that, consumer spending gauges announced a 5% year-on-year increase, well above forecasts of 4.5%. This kind of strong data adds to the positive mood surrounding the UK economy and continues to underpin the bullish trend for GBP/USD.
As these factors play out, market participants are watching carefully to see how they may impact currency valuations in the coming months. Economists consider a reading above 7 for GBP/USD to be bullish for GBP. By contrast, they view a low reading as a bad sign.
Political Developments Impacting Investor Sentiment
In addition to economic factors, political developments also play a significant role in shaping investor sentiment toward the Pound Sterling. President Trump’s new bill, which recently gained approval from the House of Representatives, signals potential shifts in fiscal policy that could impact economic stability in the United States. While moving the bill to gain ground in the Senate is a key step, it might still help shape market forces even further.
US Dollar remains soft as worries about US fiscal imbalances continue to mount amid these political developments. Investors interest is starting to cool. They are seriously considering how these lopsided investments might affect longer-term economic growth and recovery in the US. It is this caution which has given rise to the climatic conditions that have given birth to the current strengthening of the Pound Sterling against the US Dollar.
Market analysts are advising traders to be on guard. Of course, they want to see substantial changes in UK and US economic policy. The tug-of-war between political infighting and economic strength will almost certainly remain influential in driving currency valuations in the weeks ahead.
Looking Ahead: Key Levels and Market Outlook
The GBP/USD pair touches important technical levels. Market participants continue to watch these key hurdles that could shape future market moves. The high tick on Jan 13, 2022 was 1.3750. Market participants expect this as a key resistance level for the currency pair. Traders and analysts alike feel if the market can break above this 1.40 level then we could see some additional bullish momentum for the GBP.
Traders are pleasantly bullish on possible shorts for GBP/USD in the short-term. This optimism is largely due to the bullish trend shown by the daily EMA and RSI. A change in economic data or a political development that surprises the market could lead to sudden volatility.