Yahoo Finance What’s Just Ahead for the GBP/USD Currency Pair?
Over the past month, the US Dollar Index has shed some 1.17%, in line with the overall trend experienced for the year-to-date. For 2017, the US Dollar Index is down 10.18% and the index is currently trending near its 52-week low of 92.40. The US Dollar Index measures the USD against a basket of 6 currencies, including the GBP, JPY, SEK, CHF, CAD and EUR. The US Dollar Index is regarded as a barometer of the USDs overall performance, and for the year-to-date, that is negative.
The GBPUSD reflects the poor performance of the USD as the cable looks like it is breaking towards the 1.30 handle. The 52-week trading range of the GBP/USD pair is 1.19952 on the low end and 1.34427 on the high-end. The GBP is certainly showing signs of short-term bullish momentum, advancing from 1.2816 on Wednesday, 23 August to 1.2927 on Tuesday, 29 August. These trends are in line with trader expectations, given the selloff taking place with the USD.
Recent Missile Tests Hit the USD Hard
The GBP continues to rally against the USD, after North Korea launched a missile over Japan. The latest missile attack marks the fourth time that North Korea has launched an intercontinental ballistic missile within a space of 4 days. The North Korean weapons program is alive and well, and it is a stark reminder of Pyongyang’s determination to resist US pressure to back down on nuclear arms development. Since February 2017, the renegade regime has launched 21+ missiles over a series of 14 tests, improving its launch capabilities with every performance.
For his part, President Donald Trump was unequivocal: “The world has received North Korea’s latest message loud and clear… North Korea has signaled its contempt for its neighbors… And for minimum standards of acceptable international behavior.”
As is so often the case when geopolitical uncertainty strikes, the USD comes under heavy selling pressure. Currency markets were shaken to the core as the GBP/USD rally towards 1.296. This marked a resurgence of the GBP/USD, which has faltered somewhat in recent days. The international community remains aghast at developments in North Korea, but with so few options available it is difficult to contain North Korea.
The missile launch is the latest in a series of events that has destabilized currency markets, and the GBP/USD has benefited accordingly. The Japanese are gravely concerned by recent developments, and Prime Minister Shinzo Abe is urging US President Trump to apply additional pressure on North Korea. The Chinese alluded to the tensions in the region, but laid blame on the US, and South Korea for their military tests.
Driving Factors for the GBP/USD Pair
When tensions with North Korea begin mounting, currency traders and speculators seek safe haven in the Japanese Yen, gold, Bitcoin and the GBP. Unfortunately, the sterling’s recent advances were halted with the Nationwide housing data release. During August, house prices plunged 0.1%. On an annualized basis, prices declined to 2.1%, marking the worst performance of the housing sector in 4 months. The Trump administration is looking to push through various tax reforms, but it remains an unlikely prospect given the gridlock in DC.
To date, Trump’s ambitious agenda has largely failed, bar the nomination of conservative Supreme Court justice Neil Gorsich to the bench. If Trump manages to get a positive reaction from Republicans and Democrats in the house vis-à-vis tax reform, the USD will find fresh relief. Unfortunately, it is trending bearish and likely to continue doing so.
Several important UK economic data releases are slated for coming days. These include the following
The balance of trade for July, on Friday, 8 September 2017
Inflation rate year on year for August, on Tuesday, 12 September 2017
The unemployment rate for July on Wednesday, 13 September 2017
The Bank of England Monetary Policy Committee Meeting Minutes, and interest rate decision on Thursday, 14 September 2017
Any positive moves with UK economic indicators such as rate tightening, a hawkish approach to the economy, or a falling unemployment will be beneficial to the GBP/USD pair.
Several important US economic data releases are expected in coming days, including the following:
Nonfarm payrolls data for August will be released on Friday, 1 September 2017
US balance of trade for July figures will be released on Wednesday, 6 September 2017
The core inflation rate and the inflation rate year on year for August will be released on Thursday, 14 September 2017
Any positive moves with US economic data releases will strengthen the USD, and cause the GBP/USD pair to retreat towards the critical 1.2850 handle.
This article was originally posted on FX Empire
