- GBP / USD has fallen to 1.3725 and is considering a test of last week’s lows just above 1.3700.
- A broader rally in the US dollar in recent trade is weighing on the pair.
The GBP/USD it has fallen back to fresh lows for the day in recent trading at 1.3725, weighed down amid a broad recovery in the fortunes of the US dollar against all of its G10 counterparts. The pair is now trading down around 0.7% or about 90 pips. As the pound has dropped to fresh lows for the day and seeks to test last week’s lows around the 1.3700 level, the dollar index (DXY) has moved back towards the 92.50 level and is now back above its DMA of 200.
For comparison, after a strong start to 2021, the GBP / USD pair is still a long way from its own 200 DMA, which is currently just above 1.3300. It would take a drop of more than 3.0% for GBP / USD to drop here. Watching the price action of the British pound over a much shorter time horizon tells a less pretty story; The currency is the worst performer in the G10 for the week by some margin, more than 0.6% against the US dollar (compared to the euro, which is up almost 0.9% against the dollar, and the yen, which is closer to 0.8 %).
Performance of the day
Recent comments on his infrastructure spending proposal from US President Joe Biden and the release of the FOMC Minutes for March 16-17 contained no new surprises and thus do not appear to have had a lasting impact on market sentiment. But as noted, in recent trading the US dollar has been recovering, although the bullish move is quite modest at the moment and the DXY has a way to go to return to recent highs near 93.50.
In terms of why the GBP is underperforming, no fundamental catalyst appears to be driving the weakness. Indeed, the news from the UK this week has been mostly good, with British Prime Minister Boris Johnson announcing as expected on Monday that the UK will be able to go ahead with its planned easing of lockdown restrictions on April 12 (Most businesses will be allowed to reopen to the public, provided this is done in a Covid-19 safe manner, in addition to indoor hospitality). The narrative of the UK’s comparatively strong short-term economic outlook versus most of its developed market peers, given its rapid vaccine rollout and declining Covid-19 infections, has meant that the British pound has been the best performing G10 coin so far this year (and still is).
However, some gains appear to be being made on the GBP’s extended long positioning and this has been particularly the case for the EUR / GBP, which is currently scheduled for its steepest one-week rise since September 2020; The strength in this pair was the initial catalyst that fueled GBP / USD weakness before the USD began to rally more broadly.