- It’s easy to see that the GBP/USD currency pair is in a major uptrend, and the fact that we have seen this market bounce a bit during the early hours on Monday should not be a huge surprise.
- After all, we have just seen a little bit of a pullback, and therefore I think that there would be a lot of people willing to step in and take advantage of “cheap British pounds.”
- That being said, you should also keep in mind that the market is more likely than not going to still feel a little overstretched, as we shot straight up in the air for quite some time.
Federal Reserve
At this point in time, the currency markets are moving on ideas of what the Federal Reserve will be doing, as traders certainly expect an interest rate cut in September. However, the real question then becomes what does the Federal Reserve do later? I think at this point in time it has become obvious that the market will continue to look at the Federal Reserve as being very dovish, and if that’s going to be the case it does make a certain amount of sense that the US dollar will soften.
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However, I would caution traders on getting far too dovish on the greenback. After all, there are a lot of economic concerns out there and the US dollar is quite often used as a form of safety, as traders will run to the US Treasury market as soon as trouble comes. The global economy is a bit of a mess right now, and while some of the numbers look okay, the reality is that we still have massive differentials from country to country, and it seems like instability is probably the new norm. If that is going to be the case, then you are very likely going to see a situation where sooner or later, there will be some type of shock to the system that has people running toward the greenback. That being said, in the short term it looks like the British pound is going to continue to attract inflows.
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