Pound set on 5-day successful streak as US yield hurts threat sentiment

© Reuters

By Yasin Ebrahim – The pound tumbled Thursday to hold its pace for its first loss in six trading days against the dollar as rising US bond yields fueled risk sentiment.

fell 0.66% to $ 1.4043.

The pound, which has moved in parallel with risk-weighted assets for the past few months, followed a collapse in stocks due to a sudden surge in US bond yields. Moving in the opposite direction of prices, the price rose to more than a year high above 1.6% before returning some gains.

Despite their penchant for following risk-weighted assets, not everyone believes that the pound has become a risky currency. "The role of the pound as a risk currency is not earned," said HSBC, according to Bloomberg.

The pound has "a slightly lower correlation with stocks than other" risk-on "currencies," and the currency's recent appreciation has been driven by optimism about the recovery in the UK, the bank added.

The bullish outlook for the economy was fueled by the rapid pace of vaccine launches, which eased pressure on the country's health system and led the government to come forward with plans to reopen the economy this summer.

“(D) The plan to reopen the majority of sectors by mid-May seems achievable and should contribute to a 5% recovery in GDP in the second quarter – even if the plan to end social distancing entirely in June is in Reality seems a bit ambitious, "ING said in a note.

The strength of the cable since the turn of the year surprised some. Bank of America recently admitted that its skepticism about how long the currency pair could keep making gains was misplaced. "Our skepticism about the durability of the GBP rebound beyond initial relief is misplaced," said Kamal Sharma, a foreign exchange analyst with Bank of America (NYSE :). "(D) The UK's handling of the pandemic in 2020 was lacking. This is in stark contrast to the highly effective launch of vaccines in 2021," he added.

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