GBP/USD hit a fresh 34-month high in early European trade on Monday, as the Sterling firmed further due to UK’s relative success in COVID-19 vaccination roll-out, which is expected to pull the economy out of the pandemic-induced recession.
Ebbing concerns that the Bank of England could bring interest rates below zero has been another factor to support the British currency.
As many as 17.6 million people in the UK have already received a first dose of a novel coronavirus vaccine, the latest government data showed, which places the country behind only Israel and the United Arab Emirates in terms of vaccines per head of population.
British Prime Minister Boris Johnson is expected to announce a plan later today that will allow the UK to exit its third national lockdown.
“Commodity currencies and the pound are particularly strong against the dollar, and this trend looks set to continue,” Yukio Ishizuki, foreign exchange strategist at Daiwa Securities, was quoted as saying by Reuters.
“Britain’s vaccination programme is making a lot of progress. Economic activity is gradually returning to normal in many places, which puts some pressure on the dollar.”
The recent surge in long-term bond yields and an improved response to the pandemic in the United States have provided support to the US Dollar. Some market players are still optimistic about the dollar outlook, as the latest CFTC data revealed USD net short positions had shrunk to $29.09 billion, or the lowest level since mid-December, last week, marking a fourth straight period of decrease.
As of 10:10 GMT on Monday GBP/USD was edging up 0.14% to trade at 1.4019, after earlier touching an intraday high at 1.4052, or its strongest level since April 20th 2018 (1.4091).
“If the highs from April 2018 are taken out it will encourage expectations that the pound is adjusting to a new higher equilibrium now that Brexit risks have diminished,” MUFG currency analyst Lee Hardman wrote in an investor note.
“Whereas if those highs remain in place, market participants may then start to question whether recent pound strength is overshooting and thereby increasing the risk of a correction lower.”
The major pair has gained 2.41% so far in February, following another 0.24% advance in January.
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 5.6 basis points (0.056%) as of 9:15 GMT on Monday, or unchanged compared to February 19th.
Daily Pivot Levels (traditional method of calculation)
Central Pivot – 1.3995
R1 – 1.4040
R2 – 1.4080
R3 – 1.4124
R4 – 1.4169
S1 – 1.3955
S2 – 1.3911
S3 – 1.3870
S4 – 1.3829