GBP/USD Rebounds to Weekly High but Remains on Shaky Ground
- Feb 5
- 2 min read
Updated: Feb 10
GBP : GBP/USD rebounds to weekly high
During today's Asian session, the GBP/USD reaches a one-week high, just advancing 1.2500. As the USD Index (DXY) maintains its closeness to weekly lows on prospects of additional Federal Reserve policy easing, the downside is still constrained by the USD's continued weakness. The JOLTS survey released on Tuesday, which indicated a downturn in the US job market, confirmed these projections. US President Trump's decision to postpone tariffs on Canada and Mexico has improved equity markets and eased trade war anxieties, bolstering global risk sentiment.
Gains for GBP/USD are, however, limited by concerns over US-China trade tensions and the Fed's hawkish stance. Ahead of tomorrow's policy meeting of the Bank of England, traders are being cautious. The GBP/EUR pair is still trading just above the €1.200 handle, indicating that the pound is holding its own against the euro.
EUR : Reluctant to pursue Euro much higher
Given Trump's proposed tariffs on the EU and the fact that the Euro is still essentially unappealing, the market outlook appears to indicate that EUR/USD will lose support once it hits $1.0400. This is reflected in the EUR:USD two-year swap rate spread, which is -185bp, restricting upside potential. The EUR/USD price action is driven by trade news, as the Eurozone calendar remains calm for the remainder of the week. With Chief Economist Philip Lane appearing this afternoon, we'll also be watching for any changes in the ECB's narrative in response to somewhat warmer inflation data.
USD : Protectionism the priority but other news also takes place
Since the US-Canada-Mexico border agreement on Monday, the dollar has dropped off and attention is now turning to China. Market optimism has been maintained by Beijing's restrained response to Trump's tariffs, even while the chances of a protracted trade war with China are still cheap. Trump has more time to negotiate because tariffs on China have less of an effect on US consumers, even though a US-China agreement appears likely. The AUD and NZD, which are pricing in a deal, are under downward pressure as a result. In other news, Trump's plans for Gaza are viewed with suspicion. Market sentiment may shift away from risk if the US sends soldiers to the Middle East, and the dollar and oil prices may rise.
Even if US macro news is receiving more attention, protectionism is still the main driver. With a constant quit ratio and a cooling labor market, JOLTS job listings indicate less wage pressure. ISM services surveys, especially the price paid subindex, will be keenly monitored, and ADP employment numbers are anticipated to be higher than those from December. Although market consensus warns against a protracted decrease given the uncertainty, it does signal that there is some chance for the dollar to correct lower due to optimism surrounding the US-China pact.
