GBP/USD to Remain Stable, No Response to UK Budget

GBP price, news and analysis:

  • GBP/USD continues to trade just under the 1.40 level, as it has since early Friday, and shows no sign yet of breaking either higher or lower near-term.
  • There was nothing in Wednesday’s set-piece UK Budget, or the accompanying economic forecasts, to affect it one way or the other.
  • Traders need to keep an eye out for rising Gilt yields, however, as they could begin to increase concerns about inflation and a possible response from the Bank of England.

GBP/USD stability to persist near-term

Wednesday’s UK Budget and the accompanying forecasts by the independent Office for Budget Responsibility, a set-piece political event, came and passed Wednesday with nothing in it to affect the British Pound. GBP/USD therefore remains in the narrow range it has traded in since Friday last week, with no sign yet of a breakout either up or down.

However, traders need to keep an eye out for rising government bond yields around the world, as the debt markets respond to fears that a global economic recovery from the slump caused by the coronavirus pandemic will lead to higher inflation and a hawkish response from central banks – including the Bank of England.

You can find a forex traders’ guide to the Bank of England by clicking here

The rise in UK sovereign bond (Gilt) yields can be seen in the daily chart below.

UK 10-Year Gilt Yield Chart, Daily Timeframe (December 9, 2020 – March 4, 2021)

UK 10-year Gilt yield.

Source: (You can click on it for a larger image)

For now, though, GBP/USD remains just below the psychologically-important 1.40 level, between resistance at 1.4182, the February 25 high, and support at 1.3859, the low touched on March 2.

GBP/USD Price Chart, Hourly Timeframe (February 25 – March 4, 2021)

Latest GBP/USD price chart.

Source: IG (You can click on it for a larger image)

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GBP Forecast

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It’s worth noting that if both US Treasury yields and UK Gilt yields rise in tandem that should have no impact on GBP/USD. However, the pair could still be buffeted by comments from Federal Reserve and Bank of England policymakers as traders weigh up whether one central bank is more hawkish than the other.

of clients are net long.

of clients are net short.

Change in Longs Shorts OI
Daily -4% 0% -2%
Weekly 22% -21% -4%

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— Written by Martin Essex, Analyst

Feel free to contact me on Twitter @MartinSEssex

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