RationalFX : Sterling erased early losses against the dollar on Tuesday as the pound benefited from global investors purchasing UK assets amid fresh optimism that the UK economy is on track to show a post-Covid economic recovery.
During early trade, sterling traded close to its lowest level for two and a half weeks as the increase in US bond yields helped strengthen US currency demand and put a brake on gains.
However, the downturn was relatively short-lived as sterling rebounded finishing the day higher. There was no clear reason for the rally in sterling, rather a combination of factors appear to be at play which is keeping the British currency supported. For instance, the UK’s vaccination program continues to excel, but also, the UK’s Covid-19 situation has improved with hospitalizations and deaths continuing to trend lower. As of yesterday, new Covid-19 infections fell to 5,455 which is close to a 50% improvement on the week prior, and Covid related deaths fell to 104 from 178 the week previous. Added to this, on Friday Bank of England member Andy Haldane downplayed the prospects of negative interest rates this year due to the potential for rising inflation then it would seem the pound has all the ingredients to hold firm at current levels.
British house prices also defied expectations of a slowdown last month and rose unexpectedly according to mortgage lender Nationwide. Market expectations of a 0.7% contraction were wide off the mark as house prices rose 6.9% compared with 6.4% last month on an annual basis.
The dollar started Tuesday’s trading session firmer but finished softer as risk appetite improved amid stability returning to US stocks. The dollar has benefited from recent volatility in stocks with rising yields in US bonds unsettling investors causing them to take risk off the table. As of yesterday, US treasuries stabilized with yields lower than last week’s highs which have helped restore some calm to markets.
The improvement in risk appetite was also aided by comments from President Joe Biden who suggested that the US were making progress in their Covid vaccination rollout. According to the President, the US will have enough Covid-19 vaccine supply for every American by the end of May, an improvement of two months in the previous target set by the President.
12:30 – GBP – Spring budget statement
13:15 – USD – ADP Employment change expected to rise to 177k from 174k
15:00 – USD – ISM Services PMI Feb expected: 58.7 previous: 58.7
Source : ETFWorld.co.uk