Market concerns about the possibility of a ‘trade war’ being sparked between the US and China have kept considerable pressure on the US Dollar and this made it easier for the British Pound to US Dollar (GBP/USD) exchange rate to advance when markets opened on Monday.
Following last Friday’s GBP/USD jump from near 1.4000 to 1.4087, the pair saw further gains on Monday. GBP/USD briefly touched on a high of 1.4158, its best level in almost two weeks. At the time of writing, the pair trended closer to the level of 1.4130.
The primary reason for the pair’s Monday gains were market concerns that the chances of a ‘trade war’ between the US and China were worsening, due to fiery rhetoric and signals from both nations.
However, Sterling was supported earlier in the day by some surprisingly strong UK house price data for March from Halifax.
Halifax’s month-on-month print improved from 0.5% to 1.5%, despite being forecast to come in at 0.2%. The yearly figure jumped from 1.8% to 2.7%, beating the forecast 2.1%.
While this dataset is typically low-influence, it supported the Pound on Monday as it indicated to economists that Britain’s housing market was stronger than expected despite the Brexit process.
The news made markets more confident that Britain’s economy would be able to support tighter monetary policy from the Bank of England (BoE) and bolstered BoE interest rate hike bets.
Pound investors expect the Bank of England will hike UK interest rates again as soon as next month, during May’s policy decision. This has supported Sterling strength.
The US Dollar has been unable to hold its ground against a strong Pound, as investors are anxious that the chances of a US-China ‘trade war’ could be worsening.
On Monday, the US Presidency ramped up fiery rhetoric against China, showing no signs of backing away from its protectionist trade tariff plans.
Meanwhile, it was reported that China was studying the potential impact of a depreciation in the Chinese Yuan (CNY) as part of its plans to tackle US trade tariffs.
According to sources familiar with the situation, China was researching using CNY as part of trade negotiations with the US, and also looking into what would happen if the currency was devalued in order to offset any trade tariff plans.
The news caused market concerns that neither nation was backing away from this tit-for-tat in trade clashes.
This has left the US Dollar unappealing, especially following last week’s disappointing US Non-Farm Payroll results and PMI data.
GBP/USD exchange rate movement is likely to continue to be driven by US Dollar trade in the coming days too, as UK data due for publication will be largely low-influence.
Wednesday will see the publication of Britain’s February trade balance results, as well as industrial and manufacturing production results.
US inflation data and a Federal Reserve meeting minutes report during the American session is more likely to be influential however.
Of course, any developments regarding US and Chinese stances on trade and trade tariffs could influence the US Dollar, and any potential developments on the Brexit process could influence Sterling.