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GBP/USD trades sideways above 1.2300, Fed looms
GBP/USD is struggling to gain any meaningful upside traction above 1.2300 in early Europe. The pair remains supported as the US Dollar licks its wounds amid weaker US Treasury yields and cautious trading ahead of the Fed policy announcements. US PMIs will be also eyed.
Germany held a successful 10-year bond auction on Tuesday, yielding a higher rate than the previous auction in December.
The German Federal Agency for Financial Market Stabilization (FMSA) sold a total of €1.9 billion in 10-year bonds, with an average yield of 2.27% compared to the 2.25% yield recorded at the December auction. This was the first bond auction for Germany in 2021, and the bidders responded positively to the increase in yield, resulting in an auction that was 2.9 times covered and yielded €545 million more than the minimum amount required.
The result of the auction, likely in part due to the strong investor demand, further reinforces Germany’s role as an attractive option for investors seeking protection from potentially volatile currency markets and political uncertainty. The fact that the bond sale was oversubscribed and investors were willing to accept a slightly higher yield could be seen as a positive sign for the Eurozone’s largest economy, indicating a degree of confidence in Germany and the region as a whole.
The increase in yield could also be seen as a sign that investors are more willing to take on the risk associated with the bonds. As the yield increases, it implies that investors are requiring a higher return to commit their capital to Germany’s bonds, which suggests that investors have more of a “risk-on” attitude right now.
In the near-term, the auction results indicate that the German government can continue to borrow money at attractive rates, which should continue to support the country’s fiscal policies. As the Eurozone’s largest economy, Germany’s ability to finance its government spending is critical to the overall health of the region’s economy, so investors should be encouraged by the results of the auction.
The success of the German bond auction highlights the relative stability of the Eurozone as a whole, and could be a sign of improved sentiment towards the region’s financial assets as a whole. In the near-term, investors will most likely continue to favor Germany’s bonds as a safe haven, but the strong demand for the government’s paper could signal an improved outlook for Eurozone assets in the months ahead.