Forex Market: GBP/USD edges higher ahead of central bank policy meetings as vaccine roll-out supports, dollar steady after a bounce from one-week lows

GBP/USD rebounded on Monday after a 0.6% drop last Friday ahead of central bank policy meetings, as the success of the UK vaccination program continued to underpin the Sterling. The latest data showed that more than 512 000 people in the UK had received their first dose of a COVID-19 vaccine on Saturday, while the pandemic death toll dropped to a multi-month low.

The vaccination program in the country will likely accelerate even further during the upcoming several weeks, with additional supply of vaccines now available.

The greenback held steady on Monday, still supported by a surge in US Treasury yields, as investors largely anticipate the huge fiscal stimulus package in the US and pent-up consumer demand to trigger a rise in inflation, especially as the country nears an end to lockdowns due to expanding vaccination campaigns.

Against a basket of six major peers, the US Dollar was mostly stable on Monday, with DXY holding at 91.72, after rebounding from a one-week low of 91.36 at the end of last week.

The yield on benchmark 10-year US government bonds stood at 1.6320% on Monday, after rising as high as 1.6420% last Friday, a more than 1-year high.

“The base scenario is that you see the economic recovery continuing and the vaccine roll-out keeps going and the infection situation improves,” Masafumi Yamamoto, chief
currency strategist at Mizuho Securities, was quoted as saying by Reuters.

“Both the dollar and Treasury yields are on the uptrend and there’s no big change in that view. The dollar is especially likely to firm against the yen and the euro in the near term,
but it doesn’t strengthen necessarily against the commodity currencies because commodity prices are rising.”

Central bank policy decisions will be in the spotlight this week, with the Federal Reserve expected to keep policy settings intact on Wednesday, while Bank of England – on Thursday.

As of 9:30 GMT on Monday GBP/USD was edging up 0.22% to trade at 1.3941, while moving within a daily range of 1.3896-1.3950. The major pair has edged up 0.12% so far in March, following a 1.71% gain in February.

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 6.7 basis points (0.067%) as of 9:15 GMT on Monday, up from 5.5 basis points on March 12th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.3926
R1 – 1.3989
R2 – 1.4068
R3 – 1.4131
R4 – 1.4194

S1 – 1.3848
S2 – 1.3785
S3 – 1.3706
S4 – 1.3628