Forex Market: GBP/USD trades near its strongest level since May 2018 on improving risk sentiment, UK vaccine optimism

GBP/USD edged higher on Monday, while trading not far from last Wednesday’s 2 1/2-year high of 1.3759, as risk sentiment improved on hopes that retail investors who recently launched an assault on hedge fund positions had shifted their focus to other assets such as Silver.

Global risk sentiment improved with a rally in Asian shares on Monday. Additional support for the Sterling was drawn from optimism regarding vaccine roll-out in the UK. The latest government data showed that almost 9 million people in the country had already received their first dose of a vaccine.

The US Dollar had earlier been supported due to caution that retail investors who had organized online might keep targeting hedge fund short positions, while heightening market volatility.

The US Dollar Index has remained mostly stuck within a range in recent weeks, after it rebounded from an almost three-year trough at the beginning of January. The gauge retreated almost 7% last year and market players are trying to assess if that slide could be extended.

“The U.S. dollar downtrend has been arrested for the time being,” Ray Attrill, head of Forex strategy at National Australia Bank, was quoted as saying by Reuters.

“But what happens in the next one day to one week to one month is probably in the hands of risk sentiment.”

Meanwhile, political dispute over the size of US fiscal stimulus package continues. A group of Republican representatives insist that President Joe Biden considerably reduces the proposed $1.9 trillion package, while speaking in favor of a $600 billion alternative.

As of 9:50 GMT on Monday GBP/USD was edging up 0.31% to trade at 1.3731, while moving within a daily range of 1.3694-1.3758. Last Wednesday the pair climbed as high as 1.3759, or its strongest level since May 1st 2018 (1.3773). The major pair rose 0.24% in January, which marked a fourth consecutive month of advance.

In terms of economic calendar, today market players will be paying attention to the final data on US manufacturing sector activity for January by Markit Economics due out at 14:45 GMT as well as to the January report on manufacturing sector conditions by the Institute for Supply Management due out at 15:00 GMT.

Bond Yield Spread

The spread between 2-year US and 2-year UK bond yields, which reflects the flow of funds in a short term, equaled 21.4 basis points (0.214%) as of 9:15 GMT on Monday, down from 22.8 basis points on January 29th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.3699
R1 – 1.3741
R2 – 1.3793
R3 – 1.3836
R4 – 1.3878

S1 – 1.3647
S2 – 1.3605
S3 – 1.3553
S4 – 1.3501

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