- GBP/USD rallied from European morning lows under 1.3700 but again stalled in the mid-1.3700s.
- A more concerted move lower in the USD will likely be needed for the pair to see further upside.
GBP/USD has traded largely as a function of USD weakness on Monday; the pair saw some weakness in the early part of the European session, dropping briefly below the 1.3700 level from Asia Pacific levels in the 1.3730s, but did not stay there for long. The buck began to wane around the midpoint of European trade, coinciding with an explosion higher in bitcoin on the news that Tesla had invested $1.5B in the cryptocurrency. Anyway, the move lower in the buck lifted GBP/USD back above the 1.3700 level and beyond Asia Pacific session levels to the 1.3740s, where the pair is now consolidating, up around 0.1% or just over 10 pips on the day.
Driving the day
Fundamental catalysts were light on Monday. Out of the UK there has not been very much of note aside from vaccine updates (talk is of the country being able to vaccinate all adults by the end of June at the latest) and that (unsurprisingly) UK Finance Minister Rishi Sunak will extend the country’s furlough and business support scheme at the next budget at the start of March.
Meanwhile, US economic news has not had much of an impact on the US dollar, though in fairness has been broadly good; a New York Fed Survey revealed that the median year-ahead spending growth expectations of US households jumped to its highest level in more than five years, supporting the idea that pent up consumer demand is ready to be unleashed once the economy can fully reopen.
Elsewhere, Goldman Sachs raised its assumption for additional fiscal measures to $1.5T and, as such, raised their Q2 growth forecast to an annualised rate of 11%. The bank also raised its annual US growth forecasts for 2021 and 2022 by 0.2% each to 6.8% and 4.5% respectively. To simplify, the US economy is on the verge of roaring back to life once the pandemic is brought under control, accelerated by all the stimulus.
On which note, stimulus optimism continues to drive strength in equities and commodities, which seems to have weighed on the dollar a little on Monday. Congress continues to hash out the details of what the stimulus bill could look like.
GBP/USD struggles in the mid-1.3700s
GBP/USD continues to struggle for further traction as the pair rallies into the mid-1.3700s; since mid-January, the currency pair has been unable to mount a significant break above the 1.3750 level, largely because of a broadly resilient US dollar. But should dollar downside gain some momentum in the coming sessions, picking up on the losses sustained after a downbeat non-farm payrolls report last Friday, then GBP/USD stands a solid chance at hitting fresh annual highs and the 1.3800 level.
In contrast to other USD major pairs, which reside some way off recent highs, GBP/USD has been derived support from the UK’s best in the G10 vaccine rollout, as well as a less dovish than anticipated Bank of England. The former of these is expected to continue to give sterling some shine going forward, especially if its translates into the UK being able to open its economy and kick start its recovery earlier than its competitors such as, say, the EU.
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