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

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.