By Yasin Ebrahim
Investing.com – The pound slumped Thursday to remain on pace for its first loss in six trading days against the dollar as rising U.S. bond yields sparked risk-off sentiment.
fell 0.66%, to $1.4043.
The pound, which in recent months has moved in tandem with risk assets, followed a slump in equities on a sudden jump in U.S. bond yields. The , which moves the opposite direction of prices, rose to a more than one year high above 1.6%, before giving back some gains.
Despite its penchant to follow risk assets, not everyone is convinced that the pound has become a risk-on currency. “[The pound’s] role as a risk-on currency is not well deserved,” HSBC said, according to Bloomberg.
The pound has a “slightly lower correlation with equities than other ‘risk-on’ currencies,” and the recent appreciation in the currency has been driven by optimism over the U.K. recovery, the bank added.
The upbeat outlook on the economy has been fueled by the rapid pace of the vaccine rollouts that has alleviated the pressure on the country’s healthcare system, and prompted the government to lay out plans to reopen the economy in the summer.
“[T]he plan to reopen the majority of sectors by mid-May looks achievable and should contribute to a 5% bounce in second-quarter GDP – even if, in reality, the plan to end social distancing entirely in June looks somewhat ambitious,” ING said in a note.
The strength in cable since the turn of the year has caught some by surprise. Bank of America recently conceded that its skepticism on how long the currency pair could continue to rack up gains was misplaced. “Our scepticism about the durability of the GBP recovery beyond the initial relief has been misplaced,” said Kamal Sharma, a foreign exchange analyst at Bank of America (NYSE:). “[T]he UK’s handling of the pandemic in 2020 was lacking, it is in stark contrast to the highly effective vaccine roll-out in 2021,” he added.
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