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The Pound to Dollar exchange rate establishes layer of support at 1.3167-1.3141.
The Dollar has fallen amidst suggestions that the unwinding of trade fears has run its course.
"While we had been advocates of tactical USD outperformance, we would look to take profit as trade/economic optimism looks well priced," says Noah Buffam, a strategist at CIBC Capital Markets.
The USD has steadily recovered from late-April lows as investors saw the Trump administration row back from its maximalist position on tariffs, which culminated in Monday's announcement of a trade accord with China.
However, the USD's failure to extend gains following the announcement could mean investors think this accord might be as good as the news gets, as tariffs will rest at notably higher levels than pre-Trump days. Therefore, a degree of economic damage will still be forthcoming, and U.S. assets must reflect this.
"We have been flagging a tactical bounce-back in the USD which has played out. The next move lower in the USD will not be as rapid as Q1, and it will be more structural and spread over H2 as global investors think about diversifying their US assets and USD exposure. Accordingly, USD rallies in Q2 should be opportunities to sell for H2," says a note from TD Securities.
The Euro-Dollar exchange rate trades higher by 0.60% in mid-week trade, showing a renewed appetite for the Eurozone's single currency, which hints that it is performing the role of a Dollar alternative.
A major survey of fund managers shows the potential for further rotation out of U.S. assets into European assets as investors look towards improving European economic performance, which will drive ongoing Euro demand.
Euro-Dollar outperformance is reflected in a stronger Pound-to-Dollar, which trades at 1.3339, having been as low as 1.3141 on Monday when news of the China-U.S. trade accord broke.
Subsequent price action suggests a new layer of support has been painted on the charts between 1.3167 and 1.3141, with the rally potentially liable to extend towards resistance that builds from 1.34 onwards.
Is there scope for a fresh push to new highs? If the aforementioned TD Securities view that the USD will depreciate at a slower pace through H2 is correct, then GBP/USD upside in the near-term might prove limited.
Above: An inflation undershoot also contributes to USD weakness.
Recent USD weakness also owes itself to the softer-than-forecast inflation print released on Tuesday, which revealed CPI inflation for April stood at 2.3% year-on-year, below the previous month's and consensus estimate of 2.4%.
This was as the month-on-month figure printed at 0.2%, which is an undershoot against the 0.3% expected.
Markets were keenly interested in finding out whether President Donald Trump's tariff threats are impacting pricing behaviour in April. On the face of it, the answer would be not yet.
These soft data nudge higher the odds of a Q2 rate cut at the Federal Reserve, which would automatically weigh on the Dollar.