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GBP/USD nosedives as US yields rebound sharply

Philip McHugh March 15th 2021 - 2 minute read

The US dollar soared at the end of last week as the recent correction in US Treasury yields dissipated.
Meanwhile, the pound appears buoyant in early trade this morning, with GBP/EUR ticking up to €1.1673 and GBP/USD stable at $1.3931. GBP/CAD and GBP/NZD are rangebound at C$1.7369 and NZ$1.9340 respectively, while GBP/AUD has climbed to AU$1.7980.
In the spotlight this week we have the latest rate decisions from the UK and US central banks, which could infuse fresh volatility into Sterling and the US dollar.

What’s been happening?

The US dollar skyrocketed at the end of last week’s session, rallying on the back of a sharp rebound in US Treasury yields.
This surge in yields appeared to be driven by a speech from President Joe Biden, who promised that every American would have access to a coronavirus vaccine by May, accelerating the timeline for reopening the economy and boosting inflation expectations.
The upswing in the US dollar and its negative correlation with the euro tempered the single currency on Friday, which was lifted by a stronger-than-expected rebound in Eurozone industrial production in January.
The pound, meanwhile, fell back against its peers at the end of last week as the UK’s latest trade figures highlighted a worrying drop in trade with the EU at the start of this year, which overshadowed a better-than-expected GDP reading.

What’s coming up?

Turning to this week’s session, the main focus for investors will be the latest rate decisions by the Federal Reserve and the Bank of England (BoE).
First up will be the Fed’s decision on Wednesday, in which the US central bank is widely expected to leave its monetary policy untouched.
Instead, the primary focus for USD investors will be the accompanying policy statement from Fed Chair Jerome Powell, with the US dollar potentially facing some headwinds if he reiterates the Fed’s current dovish bias.
The BoE is also expected to leave interest rates on hold this week, leaving the focus for GBP investors on the bank’s forward guidance. Will an upbeat economic outlook in light of the government’s lockdown easing plans provide a boost to the pound?
In the meantime, the publication of Germany’s latest ZEW survey could help to bolster the appeal of the euro in the first half of this week, as economic sentiment in the Eurozone’s largest economy is expected to have improved again.

Written by
Philip McHugh

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