After hitting its highest value against the dollar in almost two years, when on Friday it reached $1.40 for the first time since March 2018, the pound appears to have lost some steam during early Monday trading. The markets are now waiting for the Prime Minister to reveal his government’s plan to exit the country’s lockdown, with some operators fearing that Boris Johnson will adopt an overly cautious approach that may end up capping sterling’s recent vitality in relation to its peers. The pound has, so far, been the top-performing currency of the year, thanks to a successful vaccine rollout that generated enthusiasm amongst investors. If the UK’s roadmap to exit lockdown and reignite its economy proves to be too cautious in the eyes of market operators the pound’s recent galloping performance may start to fizzle out.
The resurgence of inflation expectations, a rally in treasury yields and the possibility of seeing a stronger dollar in the next few months all hit the gold price in the last few trading sessions. In early Monday trading, we are seeing a different movie, as bullion is trying to rebound from the fresh 7-month-low achieved last week. Despite the dollar index showing a fractional gain, bullion is getting closer to $1,800. This rebound can be explained in correlation with stock indexes in the red.
From a technical point of view, the bearish trend of the last few days is losing strength but a proper inversion would require a solid recovery of $1,800. In this case, we can see the next resistances placed at $1,820 and $1,850. On the other hand, a new decline below $1,770 could further deteriorate the technical scenario.
Stock markets began the week with a bearish tone on Monday in Europe, following on from the hesitant trend registered at the end of last week on many benchmarks. Market consolidations continue almost everywhere from London to Madrid, amid a tempered appetite for riskier assets from investors. The current growing fears sparked by faster inflation continue to prompt investors to take some profits on stocks following fresh record levels and stretched valuations. However, the sell-off isn’t sharp enough yet to threaten the mid-to-long-term rally and the current dip may be another occasion to “hop-on the train” as governments and central bankers keep sustaining the trend. Today’s volatility may remain low as traders don’t expect any significant macro development apart from ECB President Christine Lagarde’s speech due later today.
Pierre Veyret– Technical analyst, ActivTrades
Disclaimer: opinions are personal to the authors and do not reflect the opinions of LeapRate. This is not a trading advice.
Experienced writer and journalist, working in the global online trading sector, Steffy is the Editor of LeapRate. She has previous experience as a copywriter and has been with the company since January 2020. Steffy has a British and American Studies degree from St. Kliment Ochridski University in Sofia.