Sterling/USD briefly surged more than 100 points above the 1.42 mark in the Asian session on Wednesday, putting pressure on the dollar index. In addition, dovish comments from US Federal Reserve Chairman Colin Powell yesterday also negatively affected the dollar. Spot gold has rallied on the back of a weaker dollar and is now trading above $1,810 an ounce, having earlier approached $1,815. On Wednesday, U.S. Federal Reserve Chairman Colin Powell will testify before Congress again, as well as a speech on the economic outlook by Fed Vice Chairman Larry Clarida, which is expected to drive market volatility. On Biden’s $1.9 trillion economic stimulus plan, the latest news suggests the U.S. House of Representatives will vote on the measure on Friday.
Sterling briefly surged more than 100 points against the dollar to break through 1.42
GBP/USD briefly surged more than 100 points to as high as 1.4236 in Asian trading on Wednesday. It gave up some of its gains and was trading around 1.4170.
Optimism about the UK’s economic recovery is the main reason to support sterling’s continued climb. On Monday, British Prime Minister Boris Johnson laid out a plan to wind down Britain’s current blockade.
In addition, recent good economic data from the UK and dovish comments from Fed Chairman Colin Powell have also pushed GBP/USD higher. Powell set a weaker tone for the dollar on Tuesday by suggesting the Fed is not ready to exit its stimulus policies.
GBP/USD has seen a clear uptrend recently. Investors insist that the rapid rollout of the new vaccine will allow the UK economy to reopen in the coming months.
Capital Economics points out that the UK’s rapid rollout of the vaccine has improved economic prospects compared with other countries, particularly those in the EU. Investors may start to favour UK assets over elsewhere, putting upward pressure on sterling.
British Prime Minister Boris Johnson announced the plan at a press conference on February 22, local time. He called the plan a “one-way road to freedom,” but he gave no assurances that it was immutable. Under the plan, the first phase of all primary and secondary schools in England will start on March 8; Allowing two people to socialize outdoors; From March 29, outdoor gatherings of up to six people or two families will be allowed, and outdoor sports facilities such as tennis or basketball courts will be reopened.
John Doyle, vice president of trading and trading at Tempus, said sterling had also benefited in recent months from Brexit and better-than-expected economic data, which reduced the likelihood that the Bank of England would cut interest rates below zero.
UK travel agents and airlines on the 23 February reported a surge in bookings for overseas trips as the prime minister unveiled plans to lift strict controls. EasyJet, one of the major budget airlines in Europe, said Wednesday that its overnight ticket bookings increased by 3 times and short-term travel bookings increased by 6 times. TUI Group, the largest travel agency in the UK and Ireland, reported a fivefold increase in overseas bookings on Tuesday night.
Powell will be back on the scene on Wednesday
Fed Chairman Jerome Powell told the Senate Banking Committee on Tuesday that there were signs the economy was recovering from its new slump, but that the Fed was likely to keep its accommodative policies in place for a while.
Despite the sharp rise in Treasury yields and rising inflation fears this year, price pressures remain largely subdued and the economic outlook remains “highly uncertain,” Powell said.
“The economy has a long way to go from our employment and inflation goals, and it may be some time before we make further substantial progress,” Powell said on the Senate Banking Committee. He added that the Fed is “committed to using all of our tools to support the economy and to help ensure that the recovery from this difficult period is as strong as possible.”
Powell’s dovish comments hurt the dollar. On Wednesday, the dollar index traded near 90.10 in Asia.
Tyler Richey, co-editor of Sevens Report Research in New York, said Tuesday’s slight rise in the dollar was a “moderate drag” on precious metals, but the relationship between Treasury yields and gold was more noteworthy. Richey said Treasury yields retreated from their early New York highs as Bauer reiterated a very dovish and patient policy stance, which helped gold stabilize and eventually pare some losses.
Gold prices fell slightly in choppy trading Tuesday, with spot gold closing down $3.94, or 0.22%, at $1805.58 an ounce. Gold rallied in Asian trading on Wednesday, reaching as high as $1,815 an ounce, helped by a weaker dollar.
Mr Powell’s comments echoed his recent remarks. In recent public appearances, Powell has reiterated that the Fed will maintain an accommodative monetary policy stance to support the economy’s recovery from a new pandemic.
On January 27, the Federal Open Market Committee (FOMC) said after a two-day policy meeting that it would keep its benchmark short-term borrowing rate near zero and maintain its asset purchase program, in which the Federal Reserve buys at least $120 billion a month, as expected. “The pace of recovery in economic activity and employment has slowed in recent months, with weakness concentrated in sectors most affected by the outbreak,” the FOMC wrote in its post-meeting statement. The statement reiterated that the new pandemic “is causing enormous human and economic hardship in the United States and around the world.”
At a news conference after the Fed’s Jan. 27 meeting, Powell said the central bank would maintain its accommodative monetary policy until its dual goals were achieved. The logical scenario for the Fed would be a high level of easing.
On Wednesday (February 24) at 23:00 Hong Kong time, Federal Reserve Chairman Colin Powell will testify on the semi-annual currency report at an online hearing of the House Financial Services Committee.
Analysts said the dollar index could remain under pressure if Powell repeats his dovish comments, which would support gold prices.
Well-known financial web site, Economies.com, said gold appeared some bearish on Tuesday, and gradually away from the bearish channel resistance, thus consolidate the gold prospects to a bearish signal, however, we still keep neutral stance, until gold confirm support fell below $1800.00 an ounce or $1820.00 an ounce resistance, in order to make clear the next target.
Gold should resume its bearish trend if it loses support at $1,800.00 an ounce, with main targets at $1,765.00 and $1,740.00, Economies.com said. On the other hand, once the resistance at $1820.00 / oz is overcome, this will push gold further to the $1840.00 / oz and $1855.00 / oz areas.
Marc Chandler, managing director at Bannockburn Global Forex in New York, said a break above $1,820 an ounce would begin to repair the technical tone.
Peter Hug, director of global trading at Kitco Metals, said gold needed to break above $1,825 an ounce before returning to its upward trend of $1,900.
In addition to Powell, investors will need to keep an eye on speeches this trading day on the economic outlook from Fed Vice Chairman Larry Clarida, as well as from Fed Governor Laresh Brainard.
Biden Stimulus Plan Sends New Message
The U.S. Congress is increasingly likely to pass President Joe Biden’s $1.9 trillion economic stimulus plan, raising concerns about a possible surge in inflation. As those expectations have risen, so has sentiment in the so-called reflation trade, which has dragged the dollar lower this month.
House Majority Leader Steny Hoyer said Friday the House will vote on Biden’s stimulus plan.
According to foreign media reports, the US House of Representatives will vote on a new version of the US $1.9 trillion fiscal bailout bill starting from 22:00 Hong Kong time on Friday (February 26).
The House Budget Committee on Tuesday voted 19-16 to move forward with President Joe Biden’s $1.9 trillion bailout bill. Progress on the fiscal stimulus package is helping to boost demand for gold.
The bill would provide more money for new vaccines and other medical devices. The bill will then be debated in the Senate, where it is expected to face greater partisan challenges and red tape.