GBP/USD extends rally, could the pairing strike $1.40 this week?

The pound enjoyed bullish momentum on Monday, amidst optimism over the UK’s potential economic recovery.
 
Meanwhile, Sterling appears to be consolidating these gains so far this morning, with GBP/EUR flat at €1.1462 and GBP/USD rangebound at $1.3913. GBP/CAD is muted at C$1.787, while GBP/AUD and GBP/NZD are holding steady at AU$1.7887 and NZ$1.9193, respectively.
 
Looking ahead, the publication of Germany’s latest economic sentiment index could put additional pressure on the euro this morning, amidst forecasts that sentiment will have deteriorated this month.
 

What’s been happening?

The pound exploded out of the gates this week, with the GBP/USD exchange rate being carried to a new 33-month high on growing hopes the UK will be one of the first major economies to fully reopen.
 
This of course comes on the back of the UK’s success in its vaccination drive, with the government announcing it had reached its target of offering 15 million of the most vulnerable a vaccine by mid-February.
 
With UK ministers pressuring the government to reopen the economy by May, Boris Johnson responded by claiming that his plan to ease the lockdown will be ‘cautious but irreversible’.
 
The euro, meanwhile, remained mostly rangebound on Monday, as hopes that former European Central Bank (ECB) President Mario Draghi could bring some stability to Italian politics after becoming Prime Minister were offset by the publication of lacklustre Eurozone industrial data.
 
At the same time, the US dollar retreated through yesterday’s trading session, with demand for the safe-haven currency being undermined be the prevalence of a risk-on tone.
 

What’s coming up?

Turning to today’s session, the focus looks to be on the euro with the publication of a couple of notable EUR data releases.
 
This includes the Eurozone’s latest GDP estimate, which is expected to confirm that growth in the bloc contracted by 0.7% in the last quarter of 2020, likely setting the Eurozone up for a double dip recession.
 
However, the more impactful release is likely to be the latest ZEW survey from Germany, where a deterioration of economic sentiment in the Eurozone’s largest economy as a result of the ongoing lockdown measures could weigh on the euro.
 
Meanwhile, the pound may well extend its positive trend through today’s session as the currency likely continues to benefit from the UK’s vaccination success.
 
Finally, the US dollar may remain on the defensive today, so long as US stimulus developments remain broadly positive.