GBP/USD drops to $1.38 amid rising US Treasury yields

The US dollar struck higher on Monday, rising in step with US Treasury yields, which were bolstered by US economic optimism.
 
Meanwhile, the pound is on the defensive this morning, with GBP/EUR slipping to €1.1605 and GBP/USD tumbling to $1.3833. GBP/CAD has retreated to C$1.7289, while GBP/AUD and GBP/NZD hold steady at AU$1.7923 and NZ$1.9272, respectively.
 
In the spotlight today we have the latest US retail sales figures, which could undermine the US dollar if sales growth contracted in line with expectations last month.
 

What’s been happening?

The US dollar got off to a solid start this week, maintaining its upward momentum from Friday’s session and rising in tandem with US Treasury yields, which hovered close to their recent highs.
 
Aiding the ‘Greenback’s ascent was the publication of the latest Empire State manufacturing index as it revealed business activity in New York struck a new two-year high in March.
 
The pound, meanwhile, struggled to find support through Monday’s trading session in the wake of the news that the EU had launched legal action against the UK for attempting to make changes to the Northern Irish trade arrangement.
 
The euro was also mostly rangebound yesterday as a result of fresh political uncertainty in Germany.
 
This followed some regional elections in the Baden-Württemberg and Rhineland-Palatinate, in which Chancellor Angela Merkel's CDU party suffered a major defeat, stoking concerns about how the party will fare in September’s general election.
 

What’s coming up?

Looking ahead, the focus of today’s session is likely to be the publication of the latest US retail sales figures.
 
Their release could sap some of the US dollar’s recent strength as economists are forecasting sales will have contracted last month following the bumper surge in January.
 
Also in the spotlight this morning will be the latest ZEW surveys from Germany. This could help to revive some demand for the euro today if economic sentiment in the Eurozone’s largest economy continued to improve this month.
 
Meanwhile, the pound looks to be facing an uphill battle today. There appears to be no clear catalyst for the move but Sterling’s fall overnight came after several European countries have suspended the use of the Oxford-AstraZeneca coronavirus vaccine.