The beginning of the week was relatively positive for the British currency, which rebounded from the lows. The improvement in the sentiment is due to the fact that England began to lift its quarantine restrictions on April 12. Such a factor may become an impulse for the pound's recovery in the near future. Although the UK will continue to comply with some quarantine regulations, most service businesses will start operating in the country.
Most of the working-age population is employed in this sector, which is known to account for about 75% of GDP. In the global export of goods and services, the share of Britain reaches 4.5%. Therefore, the recovery of this sector should have a positive impact on the recovery of growth of the entire economy of the country.
The pound looks oversold and undervalued due to last week's plunge amid fears of possible disruptions to the vaccination process. The growing concern in this context has shown how sensitive the markets are to information regarding the pandemic and vaccinations against the coronavirus.
It can be recalled that the Strategic Advisory Group of Experts on Immunization (SAGE) announced the risks of a sharp slowdown in the rate of vaccination in the country until the end of July. In addition, the regulator may suspend the use of AstraZeneca for those under 30.
However, the British authorities say that the first vaccination for the entire adult population will be offered before the end of July.
On the other hand, the information about trade disagreements with the EU could be the reason for the pound's weakness yesterday. A spokesman for Prime Minister Boris Johnson said that the discussion with European representatives has some positive shifts, however, significant differences remain over the Northern Ireland protocol. The market reacted slowly, but the pound remained trading in a positive zone, although it reduced its growth rates by the end of Monday trading.
Tuesday will be the most important day for traders of the pound due to the publication of important statistics both the UK and the US. Among the UK data are indicators for GDP, industrial production and activity in the service sector. Manufacturing output is expected to rise by 0.5% in February after declining by 1.5% in the previous month. It should be noted that in annual terms, this indicator plunged by 5.1% due to the negative impact of the pandemic.
The relatively positive data for February supported the pound's recovery. The economy gained 0.4% after contracting 2.2% in January. Industrial production rose 1%, which is twice as strong as expected. It is noteworthy that there are now heightened expectations of economic recovery due to vaccinations on the buyers' side of the pound.
The GBP/USD pair continues to trade with a bearish bias. However, the signals for the pound are inconsistent. The pressure on the pound may increase. Buyers' potential targets are set at 1.3670, 1.3640. Sellers, in turn, can push the quotes to 1.3600.
The upward scenario will become relevant again in case of a breakdown of the mirror level of 1.3742. In this case, buyers will bring the pair to the levels of 1.3760 and 1.3790 and then rise to the level of 1.3800.
Perhaps, the pound may increase to 1.3850 by the end of the week. A movement above this level would suggest a recovery in the bullish rally.
Meanwhile, the US dollar could not break the negative trend at the beginning of the week and remained trading against a basket of competitors around last week's local low (92.01). Today, trading began with a positive trend. Analysts attribute the weakness of the US dollar to the stabilization of the yield of US government bonds. The yields are not growing and the US currency has nowhere to gain support.
In addition, the specified currency remains under pressure from the stimulating policies of the Fed and the White House. The US Central Bank does not miss the opportunity to confirm its intentions to maintain a soft policy until 2023, repurchasing bonds in the amount of $ 120 billion every month. The government has adopted a $ 1.9 trillion stimulus plan.
In terms of economic calendar, the US is to publish inflation data on Tuesday and retail data on Thursday.
The inflation data is expected to show an acceleration, however, growth in Treasury yields still remains the primary support for the strengthening of the dollar.
Analysts from UniCredit said that if the new data does not lead to a significant increase in long-term profitability, the US dollar is unlikely to show impressive growth again.
They also do not expect the dollar index to return to the level of 93.00.
