GBP/USD: Sterling on track for first monthly drop in six months

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Mar 31, 2021
  • The GBP/USD is on track for the first monthly drop in 6 months.
  • The price action is because of the rising US yields.
  • The pair may keep falling in the near term.

The GBP/USD price is on track for its first decline in six months as forex investors focus on the rising US bond yields. It is trading at 1.3743, which is slightly above last month’s low of 1.3668.

GBP/USD
GBP/USD price action

US bond yields push sterling lower

The British pound declined in March as the market reacted to the rising bond yields in the United States. The bond sell-off pushed the 10-year bond yield to 1.36%, the highest level in more than a year. 

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In the same period, the 5-year and 30-year bond yields also surged as investors started pricing-in higher inflation and interest rates. Indeed, the dollar index also rallied by more than 2% in March.

On Wednesday, the GBP/USD rose slightly after the mixed economic numbers from the UK. In total, data by the Office of National Statistics (ONS) showed that the economy expanded by 1.3% in the fourth quarter. This was a stronger number than the previous reading of 1.0%. 

On an annualised basis, the economy contracted by 7.3%, better than the previous 7.8%. These numbers are pointers to the fact that the UK economy is doing better than analysts’ forecasts.

However, data from Nationwide were relatively weak. The bank said that house price index declined by 0.2% in March after rising by 0.7% in the previous month. This was a lower performance than the median estimate of a 0.4% increase. 

On an annualised basis, the index rose by 5.7%, lower than the previous 6.9% and the expected 6.4%. Further, earlier today, data by the British Retail Consortium (BRC) said that the shop price index declined by 2.4% in March. 

Later today, the GBP/USD will react to the US pending home sales numbers and the ADP employment numbers.

GBP/USD technical forecast

GBP/USD
GBP/USD technical chart

The GBP/USD is trading at 1.3750, which is 3.55% below its highest point level in March. Along the way, it moved below the 25-day and 15-day moving averages, and oscillators like the Relative Strength Index (RSI) and MACD continued to drop. The pair also moved below the pivot point and is now targeting its first support. 

Therefore, in the near term, the downward trend will likely continue as bears target the next first support level at 1.3585. Any further decline will point the pair to the second support at 1.3240. 

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