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  • GBP/USD has fallen from around 1.3900 to the mid-1.3800s, with sterling amongst the worst performing G10 currencies on the day.
  • Technical weakness in the EUR/GBP and GBP/JPY crosses appears the main driver of losses in GBP/USD.

GBP/USD has slumped back from Asia Pacific levels around the 1.3900 mark and, after hitting lows in the 1.3810s during early European trade, is trading around the 1.3850. That means the pair has incurred losses of about 40 pips or just over 0.3% on the day. GBP is one of the worst-performing G10 currencies on the session, with GBP/USD now trading close to its 21 and 50-day moving averages again.

GBP inexplicably underperforming

There is not much by way of fundamental explanation for Tuesday’s sharp GBP underperformance versus its major counterparts such as USD, EUR and JPY. Profit-taking/position adjustment versus the likes of the euro and yen, with both crosses (EUR/GBP and GBP/JPY) at multi-month extremes as recently as Monday, is likely one explanation; markets have been aggressively pricing in this narrative of near-term economic outperformance in the UK amid the country’s comparatively rapid vaccine rollout and continued progress towards reopening.

On this latter point, the UK PM confirmed on Monday that the UK will be moving to stage two of its reopening plan; non-essential retail and pretty much all other non-hospitality businesses will be allowed to reopen to the public on 12 April and this is set to provide a meaningful boost to the economy. But all of this optimism is likely to increasingly be seen as “in the price”, a notion that might encourage profit-taking (as we have seen this Tuesday) and might slow GBP’s appreciation.

In terms of economic/political events, the rest of the week is set to be quiet in the UK. Thus, focus is likely to mostly be on the country’s vaccine rollout and Covid-19 infection rates. USD traders, meanwhile, will be keeping one eye on Fed developments, with Fed Chair Jerome Powell slated to speak on Thursday following Wednesday’s FOMC minutes (from the March meeting).