Forex Market: GBP/USD mostly stable as investors weigh US stimulus hopes, Britain’s vaccine rollout push

Having eased from a more than 2 1/2-year high from last week, GBP/USD remained mostly stable on Monday, as market players were weighing hopes of a $1.9 trillion fiscal stimulus plan in the United States as well as coronavirus vaccine rollout push in Britain.

Reports emerged over the weekend that 5.9 million people in Britain had already received a first dose of the COVID-19 vaccine.

Neil Jones, head of Forex sales at Mizuho Bank, said that the Pound was performing better today due to “a return to a more risk on preferred market backdrop.”

“Asset prices are trading firm, volatility is lower and yields are pushing up, putting the USD on the back foot and forcing the pound higher,” Jones added.

Last Friday GBP/USD slipped 0.4% after the latest macro data revealed the most considerable drop in business activity in Britain since May as a result of the third national lockdown.

Meanwhile, the US Dollar held mostly steady against a basket of major peers on Monday. Still, there are opinions that the greenback could resume its decline in case the Federal Reserve reiterates its commitment to a highly accommodative monetary policy at its upcoming two-day meeting this week.

Fed Chair Jerome Powell is expected to indicate no intention to scale back the bank’s huge stimulus any time soon.

“I don’t think the Fed has any incentives to curtail its stimulus at this point, even though some market players may try to read between the lines for any signs of tapering in stimulus,” Kazushige Kaida, head of Forex sales at State Street Bank in Tokyo, was quoted as saying by Reuters.

“I think the dollar is staying in a downtrend even though it is marking time for now,” Kaida added.

CFTC data showed last Friday that net USD short positions had risen to their highest level since May 2011.

As of 10:24 GMT on Monday GBP/USD was inching up 0.05% to trade at 1.3679, while moving within a daily range of 1.3666-1.3724. Last Thursday the pair climbed as high as 1.3746, or its strongest level since May 1st 2018 (1.3773). The major pair has edged up 0.17% so far in January, following a 2.54% surge in December.

Bond Yield Spread

The spread between 2-year US and 2-year UK bond yields, which reflects the flow of funds in a short term, equaled 26.5 basis points (0.265%) as of 9:16 GMT on Monday, up from 25.3 basis points on January 22nd.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.3681
R1 – 1.3727
R2 – 1.3782
R3 – 1.3827
R4 – 1.3873

S1 – 1.3627
S2 – 1.3581
S3 – 1.3526
S4 – 1.3472