Having come under severe pressure yesterday, today the pound is trying to recover the losses it suffered. On Tuesday, the pound and the GBP / USD pair unexpectedly dropped, breaking the forecasts of many experts who are betting on further strengthening of the pound. GBP / USD was down 0.5% on Tuesday, falling from its earlier 3-week high near 1.3915 mark.
The pressure on the pound is believed to have come from information in some media that the Strategic Advisory Group of Experts on Immunization (SAGE) announced a possible sharp slowdown in vaccination rates in the country until the end of July. This regulator may also suspend the use of the AstraZeneca vaccine for those under the age of 30. The growing concern about a possible slowdown in vaccination rates in the UK thus showed how sensitive markets are at the moment to information regarding the coronavirus and vaccinations against it.
Nevertheless, despite this information, expectations of a recovery in the British economy thanks to vaccinations remain strong, and they will continue to support the pound.
During today's Asian session, the GBP / USD pair continued to decline on the back of the strengthening of the US dollar. US President Joe Biden said on Tuesday that the pace of vaccinations needs to be accelerated so that all American adults can be vaccinated against Covid-19 by April 19.
But at the beginning of the European session, the pound was supported by a message from IHS Markit. According to its data, which was published today at 08:30 (GMT), the conditions for doing business in the service sector improved in March. The UK services PMI (from IHS Markit) rose to a seven-month high of 56.3 in March from 49.5 in February. According to the calculations of experts IHS Markit, indicators of business activity, new orders and employment in the service sector rose in March compared to February.
As of this writing, GBP / USD is traded near 1.3810 mark, in an area of important short-term support and resistance levels (see Technical Analysis and Trading Recommendations) in anticipation of new drivers. If no new macro data and news are expected in the UK, market participants will follow the publication of the minutes of the March FRS meeting at 18:00 (GMT) in relation to the US dollar. As you know, the leaders of the FRS adhere to the course of the current extra soft monetary policy, expecting an increase in the interest rate no earlier than 2023.
Most likely, the minutes will confirm that the majority of Fed leaders remain in their opinion. Nevertheless, there are more and more persistent opinions in the market that against the backdrop of accelerating inflation, the Fed may raise interest rates faster than expected. If there are any hints or signals from the Fed leaders regarding the possibility of curtailing the stimulus program, then the dollar may receive strong support in addition to the growth in the yield of US government bonds.
Thus, the dollar may have the potential to strengthen further in the short term.
On the other side of the scales regarding the prospects for the dollar are the expectations of a further recovery in the global and American economies, which will create preconditions for a weakening of the dollar, since the demand for it as a defensive asset will therefore decrease. The International Monetary Fund said yesterday that the world economy will grow at its fastest pace in at least four decades this year. This will be facilitated by factors such as the acceleration of vaccination and the active fight against Covid-19 in developed countries, which will allow the abolition of quarantine measures and lifting restrictions. The IMF raised its forecast for global economic growth for this year to 6%.
Also, market participants will watch today the speech of US President Joe Biden, which is scheduled for 17: 445 (GMT). Any statements from him regarding the prospects for the American economy and the labor market will cause an increase in volatility in financial markets, including in dollar quotes, and hence the GBP / USD pair.