- GBP / USD struggled to preserve intraday gains and once again faced rejection near 1.4000.
- A strong rally in US bond yields sustained the USD and put some pressure on the pair.
- GBP bulls did not seem impressed by the UK budget statement and the disappointing US ADP report.
A sudden spike in USD demand dragged the pair down GBP/USD to the lower end of its daily trading range, around the 1.3940 region during the early days of the US session, although it lacked subsequent selling.
The pair was unable to capitalize on its positive intraday move and once again faced rejection near the psychological level 1.4000. After an early slide, the US dollar regained positive traction amid a sharp rise in US Treasury yields. This, in turn, was seen as a key factor prompting further selling around the GBP / USD pair.
The US bond market continued to react strongly to prospects for a relatively faster US economic recovery amid progress on COVID-19 vaccines and a massive US fiscal spending plan. It forced investors to price a spike in inflation and raised doubts that the Fed would sell ultra-low interest rates for a longer period.
Aside from this, a modest pullback in equity markets extended some additional support to the dollar as a safe haven, which did not appear to be affected by a rather disappointing ADP report. According to data released Wednesday, US private sector employers added 117,000 new jobs in February, down from 177,000 expected and 194,000 revised up the previous month.
On the other hand, the British pound had a rather quiet reaction to UK Finance Minister Rishi Sunak’s budget statement. Sunak extended the licensing scheme until the end of September and the stamp tax holiday for home buyers until June 30. Sunak also introduced a new business recovery loan scheme and announced that the UK corporate tax rate will increase from 19% to 25% in 2023.
The measures were seen as providing a boost to the UK economy, although the lack of major surprises failed to impress the bulls. Meanwhile, the inability of the GBP / USD pair to attract meaningful purchases suggests that positive developments are fully priced in the market and support prospects for an extension of the recent pullback from nearly three-year highs.
The next step will be the launch of the US ISM Services PMI. This, together with US bond yields, will influence USD price dynamics. Apart from this, the broader market risk sentiment should provide some boost to the GBP / USD pair and help traders to seize short-term opportunities.
Technical levels
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