GBP/USD retreats from $1.42 amidst surge in US Treasury yields

The US dollar mounted a recovery on Wednesday, triggered by a sharp uptick in US Treasury yields.
 
Meanwhile, the pound is struggling to find momentum this morning, with GBP/EUR subdued at €1.1603 and GBP/USD flat at $1.4155. GBP/CAD is rangebound at C$1.7690, while GBP/AUD and GBP/NZD hold steady at AU$1.7714 and NZ$1.9012, respectively.
 
Looking ahead, markets will be paying close attention to the upcoming EU summit of leaders, amidst hopes something will be done to speed up the EU’s vaccination programme.
 

What’s been happening?

The US dollar made modest gains yesterday as demand for the currency was revived by a sharp spike in US Treasury yields.
 
The spike in yields came on the back of reported progress towards passing Joe Biden’s $1.9 trillion stimulus package, which is helping to underpin expectations for a strong rebound in the US economy this year.
 
At the same time, the pound ticked lower on Wednesday as the currency’s recent bullish run gave way to some profit taking.
 
Sterling’s appeal was further dampened by comments from Bank of England (BoE) Deputy Governor Ben Broadbent, in which he warned that the recent strengthening of GBP exchange rates will have ‘some depressive effect on UK inflation’.
 
The euro, meanwhile, was able to hold its ground yesterday, in spite of ongoing concerns over the EU’s vaccination rollout, after the latest German GDP figures printed above expectations.
 

What’s coming up?

Turning to today’s session, the spotlight looks to be on this evening’s EU summit of leaders.
 
There can be no doubt that the summit will be dominated by the EU’s vaccination woes, and EUR investors will be looking to leaders to provide a clear plan on how to speed up the rollout.
 
In the US, an expected rise in durable goods orders in January may offer additional scope for the US dollar to rally today, unless another unexpected rise in initial jobless claims last week undermines the release.
 
Meanwhile, the pound may look to resume its rally today as it continues to be underpinned by strong fundamentals regarding the UK’s economic prospects this year.