April 17, 2024

GBP/USD Struggles to Capitalize on Friday’s Gains; US Treasury Yields Dip Weighs on USD

The GBP/USD is having a lot of trouble taking advantage of Friday’s increase in price but has been able to rebound from the 200-day SMA. However, the pair remained stable over the weekend above the psychological price level of 1.20000. This stability is because the USD has been slightly weaker over the last week in the Asian session, boosting the pair.

The USD is currently being weighed down by the dip in treasury yields, making the greenback unattractive to investors. This unattractiveness is, in turn boosting the GBP/USD pair. However, other factors are at play in the wider perspective that keeps the USD from losing too much value against the pound.

One of these factors is the growing acceptance by investors that the Fed may continue to tighten its inflation policy to combat persistent inflation. This expectation builds a positive perspective on the dollar. This positive perspective is because the positivity suggests that the Fed will take steps to maintain the currency’s value.

The downside of raising interest rates is the possibility of nosediving the economy into a recession. The looming risks of a recession will help limit the downside of the USD. The US macro data from last week indicates that the inflation rate is not dropping as fast as anticipated, indicating a resilient economy amid rising costs.

These developments will help the Fed keep the hawkish stance longer despite a rate slowdown in February to 0.25%. Moreover, most FOMC members are backing the case for higher interest rate hikes, opening the door to a 0.50% rate hike in March.

Anxiety Over the New UK-UK Brexit Deal

Anxiety over the new UK-UK Brexit agreement on the Northern Ireland protocol deters bulls from the British pound and capping the pair. The DUP remains concerned over key agreement aspects that have split since last week’s Windsor Framework release. The pair’s price action indicates that the Bank of England (BoE) will increase the rate hike.

As a result, some analysts hope the UK central bank will pause the current tightening cycle to suggest the path of least resistance for the pair. However, any meaningful upside remains elusive ahead of the week’s busy data, with Jerome’s congressional testimony, UK GDP, and NFP reports from the US.

The EUR/USD Will Probably End March in The 1.07-1.08 Range

The EUR/USD pair registered small gains last week, with Friday’s uptick ending the first week of March in the 1.07-1.08 zone. According to signals from ECB representatives, there will be a straightforward 0.50% increase in the next meeting in March.

The tough ECB talk regarding rate hikes is keeping the pair’s interest rate differentials for shorter-term deposits solidifying the support zone for the pair at 1.05. As a result, analysts strongly expect the pair to end the current month in the 1.07-1.08, with the pair starting Monday inside the 1.0600-1.0700 range, fluctuating slightly.

Eurozone retail sales data are expected later today. Analysts predict minimal regional growth, expecting retail sales to increase by less than 1%. This outcome may cause the Euro to become more defensive as the month progresses. Retail sales in the Eurozone measure changes in sales within the zone’s retail sector in the short term and are a good indicator of consumer spending.

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