GBP/USD stumbles as BoE still a long way from raising rates

The pound struggled for direction yesterday as the Bank of England (BoE) struck a mixed tone with its latest policy statement.
 
Sterling remains rangebound at the start of today’s session, with GBP/EUR flat at €1.1685 and GBP/USD stable at $1.3944. GBP/CAD is muted at C$1.7390, while GBP/AUD and GBP/NZD hold steady at AU$1.7961 and NZ$1.9418, respectively.
 
Looking ahead, will the continued rise in US Treasury yields help propel the US dollar higher today?
 

What’s been happening?

Trade in the pound was mixed yesterday in the wake of the Bank of England’s latest rate decision.
 
While keeping interest rates on hold as expected, and striking a broadly upbeat tone regarding the UK’s economic recovery so far, the BoE warned that it would need to see ‘clear evidence of progress’ on inflation before it starts tightening its monetary policy, which came as a disappointment to some GBP investors who had hoped for a more hawkish outlook.
 
Meanwhile, the US dollar mounted a convincing recovery on Thursday as the US currency once again rose in tandem with surging US Treasury yields, which hit their highest levels since January 2020 during yesterday’s session.
 
Tempering these gains somewhat, however, was the publication of last week’s US jobless claims figures, amidst a shock rise in new claims.
 
This upswing in the US dollar came at the expense of the euro as a result of the negative correlation between the world’s most traded currency pairing.
 
The single currency was also pressured yesterday by comments from European Central Bank (ECB) President Christine Lagarde, who said that the ECB would not alter its monetary policy in response to an expected acceleration of inflation this year.
 

What’s coming up?

Turning to today’s session, it’s likely we could see the US dollar extend its rally as renewed tensions between the US and China weigh on market sentiment.
 
The pound may struggle to find support today after data revealed UK public sector borrowing soared last month, rising to a record high for February as a result of the UK government’s spending splurge.
 
Finally, the euro could also face an uphill battle today following the news that Paris will go into a month-long lockdown amidst fears France is facing a third wave of coronavirus infections.