Forex Market: GBP/USD recovers from Friday’s one-week trough, UK’s successful vaccine roll-out supports

After a sharp retreat against the US Dollar at the end of last week due to an aggressive sell-off in global bond markets, the Sterling and other risk-sensitive currencies stabilized during Monday’s European session, recouping a portion of losses.

Bond sell-off reflected a bet by investors that central banks across the globe will have to tighten monetary policy much earlier than they have been projecting. The Foreign Exchange market has tracked the global bond market, with bond yields rising on expectations of a faster economic recovery.

“USD direction is likely to hinge on not only the direction, but also the pace, of global bond moves,” Commonwealth Bank of Australia strategists wrote in a client note.

“The risk is tilted to a firmer USD this week because we doubt central banks will intervene in any meaningful way yet.”

The Pound also drew certain support from a swift COVID-19 vaccine roll-out, which spurred recovery hopes.

The UK announced over the past weekend that over 20 million people had already received a first dose of a coronavirus vaccine. At the same time, new infections in the country dropped 21.2% last week compared to the prior seven days.

British Finance Minister Rishi Sunak is scheduled to announce an additional GBP 1.65 billion to fund the vaccination roll-out as part of his annual budget statement on March 3rd.

“Developments have yet again looked positive for sterling, with 20 million of the UK population having now received their first vaccine at a minimum and reports that fiscal stimulus will remain supportive in Wednesday’s budget,” Simon Harvey, senior Forex Market Analyst at Monex Europe, was quoted as saying by Reuters.

As of 10:15 GMT on Monday GBP/USD was edging up 0.15% to trade at 1.3945, while moving within a daily range of 1.3927-1.3999. Last Friday the major pair slipped as low as 1.3888, or its weakest level since February 18th (1.3840). The pair rose 1.71% in February, which marked its fifth straight month of advance.

In terms of economic calendar, today market players will be paying attention to the final data on US manufacturing sector activity for February by Markit Economics due out at 14:45 GMT as well as to the February report on manufacturing sector conditions by the Institute for Supply Management due out at 15:00 GMT.

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 3.9 basis points (0.039%) as of 9:15 GMT on Monday, down from 4.7 basis points on February 26th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.3946
R1 – 1.4004
R2 – 1.4084
R3 – 1.4142
R4 – 1.4200

S1 – 1.3866
S2 – 1.3808
S3 – 1.3728
S4 – 1.3648