- GBP/USD has rallied above its 21 and 50-day moving averages, both of which sit just under the 1.3850 mark.
- The pair is now back at 1.3900 with GBP one of the best performing G10 currencies on the day.
- Reopening optimism is helping GBP, with the PM expected to announce the country will ease restrictions again on 12 April.
GBP/USD has surged back to the north of resistance in the form of its 21 and 50-day moving averages, both of which sit just under the 1.3850 mark. The pair has now managed to recover back to the psychologically important 1.3900 level and the longer-term sterling bulls will be hoping for an eventual move back towards resistance around the 1.4000 region. At present, the pair trades with gains of more than 0.6% or just under 90 pips.
Driving the day
The main event of the day in the UK will be a Downing Street briefing with UK PM Boris Johnson, Chief Scientific Advisor Patrick Vallance and England’s Chief Medical Officer Chris Whitty at 17:00BST. At the press conference, the PM is expected to outline whether or not the country can progress on to stage two of the government’s “roadmap” to reopening the economy. Johnson is also expected to unveil a new traffic light system for foreign travel and may outline some details on the potential use of Covid-19 certificates/passports as a means of accessing services or events domestically.
As far as sterling is concerned, the decision whether to progress on to stage two of the roadmap to reopening is the most important decision. If the UK does progress to stage two on 12 April as planned, this will be a massive boost for the economy, with non-essential retail allowed to reopen, hospitality venues to be allowed to start serving customers outdoors again, and for the likes of gyms, spas, barbers, hairdressers, theme parks, zoos, libraries and museums to be allowed to reopen their doors. Given the sharp drop in Covid-19 deaths, hospitalisations and infections in the last few weeks, most expect that Johnson allows the country to progress to the next stage of reopening.
The above seems to have injected a sense of optimism into GBP at the start of the week, with the currency outperforming the majority of its G10 peers. Turning away from UK domestic affairs, the main theme in FX markets this Monday has been USD weakness. The currency continues to see a downside at the start of April following a blockbuster performance in March and all of its major counterparts are getting a boost (though, as noted, sterling is getting the biggest boost on Monday).
USD weakness
In terms of why the US dollar is weakening so much, market commentators are suggesting a combination of profit-taking in wake of March’s (and Q1’s) strong performance and a lack of safe-haven demand amid surging US equities (the S&P 500 is up roughly 1.5% on the session and at record highs near 4080) as a result of the recent string of strong US data releases, including the latest ISM services PMI survey for the month of March, which was out a few hours ago.
However, the latter explanation for USD weakness seems to be based on faulty logic; in recent months, the main driver of USD has been expectations for US economic growth to outperform the likes of the Eurozone’s (and other key developed market rivals) by an ever-increasing amount, with hawkish implications for Fed policy, as well as rising US government bond yields and widening US/G10 rate spreads, not risk appetite. Thus, with recently released US data (the ISM services survey and last week’s jobs report and ISM manufacturing survey) pointing to continued momentum in the US economic recovery and US government bond yields having jumped sharply from last Thursday’s sub-1.68% levels as a result, the same narratives that had supported the buck over the last few weeks remain alive. For some longer-term USD bulls, this most recent pull-back might represent an opportunity to add to longs.
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