- GBP/USD is consolidating around 1.3900 following a choppy Tuesday session.
- GBP and USD performed better than most of their G10 counterparts on the day.
GBP/USD is consolidating around the psychologically important 1.3900 level as Asia flow arrives. The pair swung between highs in the 1.3950s and lows in the 1.3870s on Tuesday, eventually closing the session flat despite a broadly strong US dollar. Looking ahead, Consumer and Producer Price Inflation data for January will be released at 07:00GMT on Wednesday and this is the market’s main focus on the day, though GBP traders will also be watching a speech from Bank of England Deputy Governor Dave Ramsden.
Driving the day
GBP and USD were respectively amongst the best performing G10 currencies on Tuesday, with the net effect meaning that GBP/USD was little changed. The former continues to remain underpinned by optimism regarding the UK excellent vaccine rollout progress; according to Sky News, the head of the UK’s vaccine task force said that every adult in the UK could have received both doses of the vaccine by August or September. Analysts at ING are becoming a little cautious on GBP; they say the currency is showing some signs of modest overvaluation based on their short-term financial fair value model. Thus, they think that the pace of near-term appreciation might slow going forward.
Meanwhile, the US dollar was supported on Tuesday by a sharp sell-off in US government debt markets that saw the US 10-year bond yield rally more than 11bps on the day to above 1.31%, supporting/extending the country’s rate advantage versus many of its European peers.
Elsewhere, stronger than forecast US data also helped; the NY Empire State Manufacturing Index survey was stronger than expected, with the headline number jumping to 12.1 in February versus expectations for a much more modest rise to 6.0 from 3.5 in January. The strong survey bodes well for the Philadelphia Fed Manufacturing Survey and Markit PMI report set to be released on Thursday and Friday respectively this week. With Covid-19 infection rates in the US dropping sharply and precipitating further reopening, the impact of January stimulus starting to be felt and expectations for further fiscal stimulus ahead, US economic data is set to improve over the coming months.
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