GBPUSD Displays Volatility as Pound Demonstrates Low Performance

The British pound has been awarded the dubious accolade of being the second worst-performing currency out of all G10 currencies during the course of the last 24 hours, the G10 being the most popular and liquid currencies that are traded on the global FX market.

The reasons for this sudden volatility are variable, and analysts across the financial services sector are pointing to different potential causes, ranging from a relatively lacklustre set of data having been released this week relating to UK retail sales to investors taking a conservative approach in anticipation of the Bank of England potentially following the US Federal Reserve Bank in not proceeding with any interest rate reductions in the near future.

The latter may be a bit speculatory, however, because the US dollar has risen against the British pound over the past few days, perhaps due to the US authorities having stated that there would be no interest rate reductions in the near future, which is contrary to a number of analysts having considered that the markets having expected two reductions in spring and early summer this year.

Whilst retail sales may have lagged, one metric that has cast a positive light on the British economy is the recently released unemployment figures, in which the Office of National Statistics confirmed that the unemployment rate in the United Kingdom fell to 3.9% in the three months to November from 4.2% in the three months to August.

Regardless, the GBPUSD pair has demonstrated considerable volatility this week, decreasing from the mid 1.27 range on February 2 to the lower 1.25 range during the mid-morning trading on the UK market today, February 6.

The factors which surround this sudden drop in the pound's value against a strong US dollar are relatively standard, with no unusual circumstances having taken place over the past few days; however, there is a school of thought that February can be a subdued month for the British sovereign currency.

Overall, this is an interesting dynamic and shows some degree of movement over recent days, which could be worth watching in case of possible further movement or correction, as it could go either way.