- GBP/USD buyers take a breather at one-month high, probing four-day uptrend.
- Broad-based US Dollar weakness propels Cable pair despite geopolitical, Brexit uncertainty in the UK.
- US Treasury bond yields, Fed Fund Futures slumps as US regulators rescue SVB, Signature Bank.
- UK jobs report, US CPI will be crucial but risk catalysts may gain major attention.
GBP/USD prods a four-day winning streak near 1.2180, after poking the highest level in a month to 1.2199 the previous day. In doing so, the Cable pair takes a breather ahead of the key statistics from the UK and the US. Apart from the pre-data anxiety, mixed concerns surrounding UK politics and Brexit also probe the momentum traders of the pair, after witnessing the biggest daily jump in nine weeks.
That said, the quote’s previous losses could be linked to the broad-based US Dollar slump. US Dollar Index (DXY) began the week’s trading on a back foot, printing a three-day south-run while declining the most in two months on Monday. With this, the greenback’s gauge versus the six major currencies traced the US Treasury bond yields as hawkish bets on the Federal Reserve (Fed) reverberate.
It should be noted that the US two-year Treasury bond yields marked the biggest daily slump since October 1987 by declining more than 13.0% on a day as US banking regulators rushed to defend the Silicon Valley Bank (SVB) and the Signature Bank. Further, the US 10-year Treasury bond yields slumped to the monthly low amid a sudden shift in the market’s Fed bets due to the financial market risks emanating from the stated banks.
US banking regulators undertook joint actions to tame the risks emanating from SVB and Signature Bank during the weekend. While announcing the plan, US President Joe Biden noted on Monday that investors in those banks will not be protected and reminded that "no one is above the law." However, the US President also vowed to take whatever action was needed to ensure the safety of the US banking system, per Reuters.
While portraying the latest shift in the US Fed Fund Futures, Reuters said that the US rate futures on Monday have priced in a 69% chance of a 25-bps hike at next week's Fed policy meeting, with a more than 30% probability of a pause. The market last week was poised for a 50-bps increase prior to the SVB collapse.
Elsewhere, the US-China tussles escalate while the UK joins hands with the US and Australia to provide Canberra with nuclear-powered attack submarines, a major step involving an investment of hundreds of billions of dollars aimed at countering China's ambitions in the Indo-Pacific, reported Reuters. Further, Brexit optimism fades amid the broad market anxiety. While portraying the mood, Wall Street closed mixed while Gold managed to remain firmer amid broad US Dollar weakness, as well as due to the metal’s traditional safe-haven status.
It’s worth noting that news conveying Britain's Finance Minister Jeremy Hunt, as he announces a plan to create 12 "investment zones" in England also favors the GBP/USD buyers. “Ahead of Hunt's annual budget on Wednesday, the finance ministry said each of the zones will be backed by 80 million pounds spread over five years that can be directed towards tax relief for businesses, training and infrastructure,” stated Reuters.
Looking ahead, the UK employment report will be crucial to watch for immediate directions as the central bank haws retreat. Following that, the US Consumer Price Index (CPI) for February will be important to watch for clear directions. Forecasts suggest a slight reduction in the UK’s Claimant Count Change and Unemployment Rate jostling with a minor fall in the Average Earnings. On the other hand, the US CPI is likely to ease to 6.0% YoY versus 6.4% prior while CPI ex Food & Energy may slide to 5.5% YoY from 5.6% prior.
To sum up, the mixed expectations from the UK and the US data join the market’s latest attention on the financial risks and a fall in the Treasury bond yields to dim the importance of today’s economic calendar for the GBP/USD pair traders. Even so, the quote is likely to remain firmer amid broad US Dollar weakness.
Also read: US Inflation Preview: Five scenarios for trading the Core CPI whipsaw within the SVB storm
Technical analysis
The first daily closing above the 50-DMA in five weeks, enables the GBP/USD bulls to aim for the mid-February swing high surrounding 1.2270.
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