Massive Demand for UK Gilts Spurs GBP/USD Higher
The Pound to Dollar exchange rate trades at 1.2571 and is the best-performing currency in the G10 space.
The Pound to Euro exchange rate trades at 1.1693 with an attempt at 1.17 already having been made today.
Gains are coming against other G10 majors with large gains seen against the Australian Dollar in particular.
“Sterling traders are chancing their arms that we’re going to get some concrete strategy that will ensure UK plc remains a solid investment. Record high demand for long-dated UK gilts at an auction for 40-year paper yesterday does support this optimism,” says Neil Wilson at ETX Capital in London.
The UK 30-year Gilt is yielding at 2.06%, one month ago it was at 1.98%.
The movement in yields often tends to move currencies – particularly if the yield offered by one country is growing at a faster pace than the country it is being compared to.
When we look at the United States we see yields are not enjoying the same lift as are UK yields – this provides some upside to GBP/USD.
The same can be said when UK long-date yields are compared to German counterparts.
Trump Weighs on US Dollar
The reason the Dollar and US yields are subdued is because markets continue the process of assessing the first days of Donald Trump’s presidency and how it will affect the US economic outlook.
So far, the Dollar has little room to move higher as no fresh details on Trump’s spending plans have been revealed.
“The upside risk in cable has to be considered, especially if The Donald disappoints. Therefore, further Dollar weakness could provide some substantial upside to the pair,” says Arnaud Masset at Swissquote Bank.
Source: PoundSterling
