US dollar sold as Vodafone deal ensures Pound Sterling (GBP) exchange rate complex finds fresh demand

The pound sterling is trading higher against the US dollar on Tuesday as speculators play the market ahead of today's fix.

The pound dollar exchange rate is trading higher today, as "the entire FX market (and their Grannies) seem well aware that there is a big M&A deal going through between Verizon and Vodafone and the second tranche of GBP/USD demand is expected at today’s London Fix," says Sean Lee at FXWW.

Dealers will be trying to position themselves long going into the Fix and if/when the price is jammed higher by a sudden huge demand, they then can book an ‘easy’ profit, however "looking at what happened on Friday, there was nothing easy about it," says Lee.

Those who try and buy too early risk getting stopped out by targeted pushes lower so the best policy in my opinion is to wait for any cynical dips (like we saw last night to 1.6580) and buy into weakness.

"Don’t be greedy, take the 80/100 pips on offer once the next batch of hopefuls start buying again- rinse and repeat," says Lee.

Meanwhile, the US dollar exchange rate complex appears to be rather subdued:

Yesterday's strong equity rally was accompanied by a sell-off in US treasuries.

While the USD saw modest gains against the ‘low-yielders’, the ‘high-yielders’ benefited from the risk positive tone yesterday.

US data releases this afternoon will likely attract some attention although these are likely to be weather-affected and therefore suggests downside risks.

Looking at the IMM positioning data, it shows non-commercial USD long positions have pared back over the past few weeks, coinciding with a weaker USD following a string of soft data releases.

"However, with the weak US data mainly being blamed on bad weather we do not see this as a case for concern for the FOMC. Until the market sees prospects of a genuine slowdown in activity, we would not expect significant pressure on USD long positions. So for now, while soft data points will weigh on the USD we expect downside to be limited," says Lloyds Bank Research.