GBP / USD continued trading downwards, after the Bank of England stated that it does not intend to fight the growing Treasury yields since such indicates an improved economic outlook for the UK.
"Just like in other countries, there is a slight increase in the cost of borrowing. My estimate of its growth is consistent with the changes in the economy, "BoE governor Andrew Bailey said.
Obviously, the central bank will take a similar position as the US Federal Reserve and keep its current monetary policy unchanged. That said, interest rate will remain at a record low of 0.10%, while bond purchases will remain at £ 895 billion.
But Asian and European policymakers are convinced that rising bond yields could undermine economic recovery. In fact, just last week, ECB President Christine Lagarde warned that a rise in yields is very "undesirable" at this stage, therefore, they plan to increase bond purchases this 2nd quarter.
The graph above shows the yield on 10-year Treasury bonds in the UK.
On a different note, a large number of hedge funds are selling US sovereign bonds. They have already sold approximately $ 49 billion, which makes them the largest seller of US debt last month. One of the main reasons for this situation is the victory of Democrats during the presidential race. It paved the way for massive economic stimulus, which drives economic growth and inflation. Accordingly, Treasury yields hit their highest level.
With regards to statistics, the New York Fed released a report yesterday which indicated that manufacturing activity in the area grew rather significantly this March. General business conditions have risen to 17.4 points, after increasing by only 12.1 points a month earlier. Experts have projected the index to jump by only 14.5 points.
At the same time, the report also said that many companies remain optimistic about future business conditions. In particular, they expect significant increases in employment. Therefore, the index of future conditions rose to 36.4 points.
Today, a number of important reports are scheduled to be released, and all of them should give a significant effect to the rate of the European currency. To put it more precisely, consumer prices in France and Italy, as well as the index of business sentiment in Germany and the whole Euro area should provide strong support to the euro.
Then, in the afternoon, a meeting between EU Finance Ministers will take place, but nothing much should be expected from it. There will also be data on changes in the volume of retail trade and changes in the volume of industrial production in the US, which could lead to another rise in the US dollar.
But in general, EUR / USD should remain the same, unless the bulls manage to push the quote above 1.1940. Such a scenario will set off a larger upward move towards 1.1990, or towards 1.2110. But if the bears return the euro to 1.1895, price should collapse to 1.1840, and then drop further to the 18th figure.
As for the GBP / USD pair, a break above the 39th figure should lead to a jump towards 1.3950, or higher at 1.4060 and 1.2120. But if the pound returns to 1.3845, price will decline to 1.3780 and 1.3690.
AUD
According to the data published by the Australian Bureau of Statistics, house prices in Australia rose by 3.0%, as compared to its figure last quarter. On a yearly basis, it jumped by 3.6% since the average home price increased by A $ 21,300 and hit A $ 728,500.
But even if such news is way better than expected, the AUD/USD pair still traded sideways. It seems that only a break above 0.7725–0.7770 will lead to a larger upward move towards 0.7810 and 0.7870, while a break below 0.7725 will result in a decline towards 0.7690 and 0.7640.
