The Emergence of New Purchases
The GBP/USD currency pair has held on to its bidding tone throughout the course of the early European session. The joint commodity got to trade at close to the daily high point in the vicinity of 1.2375 to 1.2380 area.
The also attracted some level of trading to itself on Thursday and it recovered some part of its slump which occurred overnight. Although it looks elusive that it would have any significant recovery soon. An easier tone around the bond yields of the US Treasury has once again sent bullish traders of the US Dollar on a defensive path and at the same time, giving support to the GBP/USD currency pair.
GBP/USD price chart. Source TradingView
Having said that, the risk-off mood in the market, as well as the possibility of a more aggressive monetary policy by the US Federal Reserve is expected to reduce the US Dollars losses. At the same time. It is equally expected to cap gains for the major currency pair.
Across the Atlantic, the Pound Sterling has been further weighed down by the impending economic recession which has been forecasted. The currency also got bogged down by declining possibilities that the Bank of England would introduce more interest rate increases
CPI Keeps Instilling Inflation Fears
The most recent consumer inflation report that was published in the United Kingdom on Wednesday, as well as an unexpected shrink of the economy in the month of March, increased the fears of stagnant inflation. Importantly, increasing wages adds to the threat of escalating the pressure from inflation and affecting spending by consumers. This will force the hand of investors to cut back on their bets on the rate increase from the Bank of England.
It also looks like the market is worried about the push of the British government to override some provisions of the trade deal in Brexit concerning Northern Ireland. This is likely to escalate tensions with the European Union and spark a trade war while there is very cost of living in the country.
If it happens, it is going to take a huge toll on the economy of the United Kingdom and give validation to the gloomy perspective of the Bank of England, and it would, in turn, put a firm lid on significant gains for the GBP/USD currency pair. Therefore, any other move upward would be regarded as a sales opportunity.
Traders are now looking ahead to the economic dockets of the United States which is expected to feature the publication of the Manufacturing index from Philly and the regular unemployment claims on a weekly basis. Reports on home sales are expected in the course of the early North American session.
Aside from those, bond yields of the US Treasury and general risk sentiments in the market are going to be influential over the US Dollar and its price dynamics. Coming news concerning Brexit should also give new momentum to the GBP/USD pair as much as the US Dollar does.