Market volatility picked up sharply last week, as signs of an initial pickup in wages, economic data resilience and the hawkish tilt of the FOMC led to expectations of faster Fed tightening. Nevertheless, after a stronger USD throughout the course of last week, the USD declined late Friday on concerns about President Trump’s budget proposal. Meanwhile, US equities ended their worst week in two years with the S&P 500 falling c. 5.2% whilst 10y UST yields finished the week at 2.85%.
After the Bank of England delivered a hawkish hold last week, moving away from the “gradual and limited” guidance, gains in GBPUSD were relatively short lived as a USD bid tone from further structural reductions of USD short positioning overwhelmed. Elsewhere in data, Visa’s UK spending index declined 1.2% in January, previously a 1.0% (y/y) decline in December.
Our traders see GBPUSD support at 1.3765 ahead of 1.3660, with resistance 1.4000 ahead of 1.4070. EURGBP support at 0.8730 ahead of 0.8685, with resistance at 0.8820 and 0.8970.
In the US, the partial government shutdown ended as a 240-186 vote in the House passed spending legislation on Friday, following a 71-28 vote in the Senate hours earlier. The two year agreement will boost Federal spending $300bn and suspends the debt ceiling for one year.
With the USD now back under pressure amid concerns on the US budget, focus turns to President Trump’s budget proposal today which may prove to neglect the Republican Party’s goal to balance the budget within the next 10 years.