The GBP/USD pair has been advancing amid bond-related dollar weakness and BoE hawkishness but the initial surge above 1.37 may prove short-lived despite good reasons to rise, Yohay Elam, an Analyst at FXStreet, reports.
Key quotes
“GBP/USD received a dual boost on Tuesday. First, Bank of England Governor Andrew Bailey stated that negative interest rates are ‘controversial’ – seeming to put the discussion to rest. The second booster came from a ten-year Treasury auction in the US. Investors were eager to purchase American debt in a reversal from the sell-off in previous days. Investors have also taken note of the UK’s accelerated vaccination campaign.”
“Coronavirus continues hitting the UK hard – with hospitals using more and more ventilating machines for severely ill patients. Wednesday’s data may prove more worrying.”
“While the EU and the UK agreed on how to manage goods, they left the larger services sector to future talks. These negotiations begin on Wednesday with little appetite from Brussels to make concessions on finance – Britain’s critical export sector. Any acrimony could hurt the pound.”
“In the US, a 30-year bond auction is scheduled for later in the day, and if demand is not as high as in the previous one, the dollar could rise.”
“Federal Reserve officials Lael Brainard and Richard Clarida are scheduled to speak late in the day and they could repeat the message that tapering the bank’s Quantitative Easing scheme is not on the cards. Nevertheless, the mere talk of reducing more money printing rather than expanding it could be dollar-positive.”
“GBP/USD continues trading in an upwards channel and is nearing the 2021 peak of 1.3705 – also the highest since 2018. While momentum on the 4-hour chart is positive, the Relative Strength Index is hitting the 70 level – entering overbought conditions. That may result in a downside correction.”
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