FX.co ★ UK to step up fiscal stimulus and economic support. Meanwhile, euro and pound continue to fall due to growing US bond yields.

The US dollar continues to edge higher as Treasury yields remain gaining amid expectations that fiscal stimulus and vaccine introduction will help restore the global economy and stimulate faster inflation. And although the chairman of the Federal Reserve System, Jerome Powell, has repeatedly dismissed the idea that a rise in inflation will lead to policy changes, investors continue to get rid of US bonds in the hopes of gaining more profitability in the future. This leads to the continued strengthening of the US dollar, as there is a redistribution of money supply.

In another note, US President Joe Biden has recently announced that the United States may receive sufficient vaccine supply by the end of May, two months earlier than anticipated. The recent advancement of the $ 1.9 trillion bailout bill through the House of Representatives is also affecting bond yields and the US dollar.

That said, the EUR / USD pair continues to decline, since the bulls failed to reverse the downward trend. And if sellers successfully push the price below 1.2040, many buy stops will be tear down, which will lead to a larger downward move towards 1.1995. Then, a further consolidation below this level will bring EUR / USD to 1.1950 and 1.1920. But if the bulls manage to return the pair to the 21st figure, the euro will climb again towards 1.2140 and 1.2190.

GBP

UK Treasury Secretary Rishi Sunak has announced that he would extend the support programs for the UK labor market until the end of September this year. He promised that the government will continue protecting "jobs" as long as necessary.

"We will continue to do our best to support the British people and business at this time of crisis," Sunak said.

Since last year, the UK government has been reimbursing most of the costs of businesses in order to ensure that employees are still paid amid the coronavirus pandemic.

Sunak has extended business aid programs for another three months. Therefore, from April 1, 2021, retail, hospitality and leisure facilities will continue to be tax-exempted for the next three months. He also announced that he will maintain the temporary 5% VAT until September 30, 2021, in order to reduce the burden on more than 150,000 companies in the tourism and hospitality sector. He also mentioned the allocation of £ 1.65 billion to maintain the pace of vaccination in the UK.

Even though the new budget inflates the deficit to mind-boggling proportions, the British pound, as well as investors, are not shaken. According to the latest forecasts, the UK economy will return to pre-crisis levels six months earlier than expected. Apparently, Sunak's decision to extend the support programs means that unemployment will be at 6.5%, rather than the 7.5% previously predicted. In fact, a difference of just 340,000 jobs is already significant for the economy. To add to that, the UK is set to spend an unprecedented £ 355 billion in 2020-2021. Only in 2023 does the UK plan to start fighting the budget deficit and start curtailing support measures.

In the meantime, sectors in the UK continue to gradually recover. For example, the service sector has increased moderately this February, jumping from 39.5 points to 49.5 points. Although the index remains below 50 points, the latest reading indicates the slowest decline compared to earlier months. This gives hope that the sector will recover soon.

The manufacturing sector is also recovering. According to the latest report, the composite index has risen from 41.2 points in January to 49.6 points in February. However, it is below the preliminary value, which is 49.8 points.

As for the GBP / USD pair, movement depends on 1.3990, as a break above it will lead to a new wave of growth towards 1.4070 and 1.4130. But if the pound goes below 1.3920, GBP / USD will drop to 1.3850, and then go to 1.3770 and 1.3720.

With regards to macro statistics in Europe and the United States, reports on the private sector were released yesterday. The IHS Markit said the final composite PMI for the US came out at 48.8 points in February, versus 47.8 points in January. This is because even if the industrial sector has posted a strong growth in the past four months, the service sector, especially in the areas most affected by restrictions and social distancing measures, continues to shrink.

Meanwhile, PPI in Europe remained unchanged, while economists had expected it to drop by 0.4%. The core index, which excludes energy, increased by 0.7%.

As for US employment, the ADP said it increased by only 117,000 in February, which is much lesser than the expected 177,000. Data from the Department of Labor, meanwhile, will be out tomorrow, and it projects the number of jobs to jump by 180,000 in February. With regards to unemployment, it is expected to remain at 6.3%.