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GBP/USD holds rally in weekend market as Fed brings back risk-appetite

We examine the recent price action from GBP/USD.

GBP/USD Source: Bloomberg

Key takeaways:

  • GBP/USD holds early-week gains as Federal Reserve acts ‘forcefully’ to rescue US economy.
  • Currency traders mostly unmoved by Boris Johnson’s hospitalisation and news the UK economy was slowing pre-coronavirus.

GBP/USD held gains to finish this week at US$1.26, as the US Federal Reserve’s ‘forceful’ $US2.3 trillion stimulus program increased risk appetite for currency traders.

Moreover, news that Prime Minister Boris Johnson’s condition in hospital had stabilised and then improved overshadowed revelations that the UK’s GDP had begun to slow before the coronavirus pandemic emerged.

GBP holds rally that looks technical

GBP/USD opened trading in London on Monday at 1.2240 after losing ground the week before due to coronavirus uncertainty. However, the GBP has rallied from its lows of 1.14098 on March 19.

Bullish trading on Tuesday helped push the GBP/USD up 2 US cents to 1.23417, although a lack of significant news pointed to technical trading in a volatile market. Further modest gains on Wednesday and Thursday lifted the GBP/USD to a three-week high on Thursday of 1.2484.

The pound eased back slightly to 1.2453 in a quieter session on Friday as traders settled into the Easter break.

Fed brings back risk appetite

Overall, currency market news was dominated by the US Federal Reserve, which unleashed a US$2.3 trillion stimulus package on Thursday. Chairman Jay Powell said the Federal Reserve would use its powers ‘forcefully, proactively and aggressively’ until the US economy recovered from the coronavirus shock.

Powell also said that when the US economy eventually bounces back it would do so quickly, thanks to its strength going into the crisis and steps taken by policymakers to reduce the damage.

This might have given investors more confidence to ease out of the USD and back into riskier currencies. However, in the case of the GBP/USD pair, most of the gains this week were booked before the Fed’s latest announcement.

Johnson, UK GDP fail to move the pound much

Currency traders also took note of the hospitalisation of the British prime minister, and his admission to an intensive care unit before his condition improved later in the week.

While the uncertainty was unhelpful, traders mostly held their ground with little suggestion UK policy towards the coronavirus would change.

Interestingly, economic data showed UK GDP actually stagnated in the three months to February, before the coronavirus crisis escalated. Gross domestic product rose by 0.1% in the December-February period, which was weaker than the median economist forecast of 0.2% growth, according to a Reuters poll.

Even so, the GBP continued firming to a one-week high against the USD after the economic data was released.

Weekend trading is likely to see investors preparing themselves for a slew of US data in the week ahead. Key news-flow starts off with the US monthly budget statement on Monday, which is expected to show a ballooning deficit.

Key data updates continue mid-week, including monthly figures for March covering retail sales and industrial production (Wednesday) along with building permits and housing starts.

The March data points should give investors a good look at the health of the US economy in the wake of the initial impact of Covid-19.

You can go long or short the FTSE 100 over the weekend with IG using derivatives like CFDs. Click here to find out how.

What is weekend trading?

Weekend trading gives you access to forex and indices markets on a Saturday and Sunday. So, if news breaks about the ongoing coronavirus pandemic – or central bank measures to ease the strain on global markets are announced – you no longer need to wait until markets open on Monday to trade.

The weekend prices for indices and forex are quoted separately to their weekday counterparts, based on our view of the prospects for that market given client business and news flow. As a result, you can use these markets to hedge against risk on your weekday positions. Weekend indices and forex positions will rollover into regular weekday positions if they are kept open after the Sunday close, with any stops or limits remaining in place.

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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