GBP/USD has dropped to fresh session lows through the key psychological level of $1.25 and within a breath of year to date lows. This is the 4th straight session that the GBP has fallen against the strengthening USD.
The Dollar is being supported by a strong recovery in US Treasury yields. Recent moves by central banks, particularly the Federal Reserve of New York and BoJ, in addition to hopes of a more robust policy response has lifted risk sentiment, hitting demand for safe havens such as US Treasuries, boosting yields and the dollar.
This sharp recovery in sentiment is also evident in the US stock market. The futures hit Limit Up, after rallying 5% across the European session.
The rally in the dollar comes despite traders growing increasingly convinced that the Fed will cut interest rates by 100 basis points at the FOMC meeting next week. This would be a move that we would normally expect to see drag on the dollar.
BoE Minutes - more room to cut
Meanwhile GBP is on the back foot after the BoE released the minutes to its unscheduled policy meeting when it voted to cut interest rates from 0.75% to 0.25%. The minutes show that the BoE expect UK economic activity to weaken over the coming week and months and that they will also have more information on the size of that hit as data starts coming through over Q2. The BoE believes there are still tools in its toolbox and another rate cut is possible.
GBP also appears to be questioning Boris Johnson’s approach to coronavirus. UK school are still open whilst those across Europe and the US are starting to close. There is no ban on large scale public meetings in England yet. A lack of confidence in the approach means the pound sees a bigger financial hit as the virus spreads uncontrolled
In addition to the coronavirus hit to the economy, GBP traders are also fretting about its impact on post Brexit trade talks. Talks next week have been postponed. This put pressure on an already very tight timeline.
US Consumer confidence up next
US Consumer confidence data is next. The release is for March, therefore will reveal the first coronavirus impact. Expectations are for consumer confidence to fall to 95, down from 101 in February which was the second highest reading since the financial crisis. So far, the US economy hasn’t experienced large scale closures but that dean’s mean that the mind of the US consumer isn’t changing. Markets have already priced in a big economic hit from coronavirus as long as consumerism remain relatively optimistic the dollar should hold its gain.
GBP/USD Levels to watch
GBPUSD is trading at fresh 5 month lows, through $1.25. It tades below its 50, 100 & 200 sma on a bearish chart.
It trades at its daily low of $1.2466. Support can be seen at $1.2450 and $1.2350 lows from October last year.
Support can be seen at $1.2625 (today’s high) , $1.2705 (200 sma) and $1.2745 (low 3rd March).
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