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GBP/USD Latest Analysis

The British Pound continues to increase in value against the US Dollar during today’s first two trading sessions. The Pound has been gaining against the US Dollar for four consecutive days, in a move that is mainly driven by a declining US Dollar rather than a strengthening Pound.

The GBP/USD pair has increased by 43 PIPs and has managed to remain above the previous swing high (1.26000) for 2 successive days. However, even though the price has climbed onto a higher price range, it has not been able to break onto consecutive price highs. Instead, the price has formed a sideways trend failing to break the 1.2656 level on four occasions throughout last Friday and today. If the upward trend is to continue, the price will have to successfully break above this price without correcting.

GBPUSD - 30.05.2022 - 1.jpg

As today is memorial day in the US, many markets are currently closed, including the stock market. Traders will be eager to see how the market will react to the US Dollar when the financial trading markets reopen tomorrow.

The US Dollar has come under pressure as risk sentiment has slightly increased over the past 2 weeks. The US Dollar has acted as a safe haven investment during the Ukraine and energy crisis. However, as economists continue to warn of a potential US recession and the side effects of the Ukraine-Russia conflict have eased, investors have returned to risk-based assets such as the stock market, company bonds and cryptos - all of which experienced bullish moments today.

The week’s price movement will also depend on this week’s PMI, NFP and the number of new job vacancies (due to be released this Wednesday and Friday). If the figure indicates a stable and growing employment sector, the USD may attempt to regain previous losses.

The Pound, on the other hand, has shown signs of potential weakness when focusing on fundamentals. The Bank of England continues to warn of the likelihood of a UK recession. In addition to this, the government has confirmed there is a shortage of certain raw materials and food, as well as natural gas. UK government officials have advised that if Russia cuts its supply of natural gas further, the UK government will have to ration electricity in the new year.

The UK economy has shown signs of slowing as well as having problems with both supply and demand. Consumer confidence index has also taken a hit due to a surge in the cost of living as well as taxes. The question remains whether the UK will be able to reduce inflation and avoid a recession.

Even though the Pound has increased by over 4% in recent weeks, the market is being mindful of the risks associated with the GBP and the US Dollar’s status as a safe haven currency. If a recession does materialize, the GBP/USD pair will not only potentially decline due to a UK recession, but also due to an increased demand for safe haven currencies such as the US Dollar.

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