- GBP/USD marched above the 1.4100 level on Tuesday and is now up over 3% on the month.
- Optimism over the UK’s vaccine rollout and reopening plans continues to boost GBP, but concerns the currency is becoming overbought are growing.
GBP/USD continued its upwards march on Tuesday and rallied confidently to the north of the 1.4100 mark for this first time since April 2018. As FX market volumes dip ahead of the start of Asia Pacific trade, the pair is consolidating just to the north of the 1.4100 level. As seemingly been the case more often than not this month, GBP again finished the session at the top of the G10 rankings, up 0.36% or about 50 pips.
Tuesday’s gains marked a fourth straight session in the green, during which time the pair has rallied from the mid-1.3800s to current levels nearly 250 pips higher. Out of the 17 trading session so far this month, GBP/USD has finished higher 13 times and has rallied north of 3% from the mid-1.3700s.
Driving the day
Sterling’s confident performance on Tuesday came despite a softish monthly labour market report – market participants haven’t seen these labour market updates from the UK Office of National Statistics particularly informative over the last few months given that the UK government’s furlough scheme, in which the government subsidises employee wages so long as they are kept on the company’s payroll, distorts the data.
More important for sterling are reports that UK Finance Minister Rishi Sunak is likely to extend the furlough scheme again until the end of May, after which it is hoped that most Covid-19 restrictions will have been lifted. But that was seemingly not the main focus of the day, according to traders, many of whom suggested that gains in sterling were down to continued optimism over the UK’s vaccine rollout and reopening plan. Reports from the Telegraph suggesting that the rate at which the UK government eases lockdown restrictions could be accelerated if real-world data on the effectiveness of vaccines is better than expected is likely to support this GBP bullish narrative.
Some market commentators also point to sterling supportive M&A news; UK insurance company Aviva confirmed on Tuesday the sale of its French unit to France’s Aema Groupe for EUR 3.2B (which equates to £2.7B).
Note that more and more FX strategists are ringing alarm bells about how GBP might be entering overbought territory. After all, GBP/USD is up nearly 2% in four days. Some profit-taking might be in order.