GBP/USD holds steady above mid-1.3900s, moves little post-UK budget/US ADP report

• GBP/USD struggled to preserve intraday gains and once again faced rejection near the 1.4000 mark.
• A strong pickup in the US bond yields underpinned the USD and exerted some pressure on the pair.
• The GBP bulls seemed unimpressed by the UK budget statement and disappointing US ADP report.

A sudden pickup in the USD demand dragged the GBP/USD pair to the lower end of its daily trading range, around the 1.3940 region during the early North American session, though lacked any follow-through selling.

The pair failed to capitalize on its intraday positive move and once again faced rejection near the key 1.4000 psychological mark. Following an early dip, the US dollar regained positive traction amid a sharp rise in the US Treasury bond yields. This, in turn, was seen as a key factor that prompted some fresh selling around the GBP/USD pair.

The US bond market continued reacting strongly to the prospects for a relatively faster US economic recovery amid the progress on COVID-19 vaccinations and a massive US fiscal spending plan. The reflation trade forced investors to price in an uptick in inflation and raised doubts that the Fed would retail ultra-low interest rates for a longer period.

Apart from this, a modest pullback in the equity markets extended some additional support to the safe-haven USD, which seemed unaffected by a rather disappointing ADP report. According to the data released this Wednesday, the US private-sector employers added 117K new jobs in February, fewer than 177K expected and the previous month’s upwardly revised 194K.

On the other hand, the British pound had a rather muted reaction to the UK finance minister Rishi Sunak’s budget statement. Sunak extended the furlough scheme to the end of September and the stamp duty holiday for homebuyers until June 30. Sunak also introduced a new recovery loan scheme for businesses and announced UK corporate tax rate will increase to 25% from 19% in 2023.

The measures were seen as providing a boost to the UK economy, albeit the lack of any major surprises failed to impress bulls. Meanwhile, the GBP/USD pair’s inability to attract any meaningful buying suggests that positive developments are fully priced in the market and supports prospects for an extension of the recent pullback from near three-year tops.

Next on tap will be the release of the US ISM Services PMI. This, along with the US bond yields, will influence the USD price dynamics. Apart from this, the broader market risk sentiment should provide some impetus to the GBP/USD pair and assist traders to grab short-term opportunities.

Technical levels to watch