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Market Analysis – GBPUSD

The GBPUSD saw high levels of volatility yesterday due to speeches by the Bank of England. The instrument saw price movements in both directions, but overall ended with the bearish movement claiming a win for the day. The movement of the asset throughout today’s Asian Session has so far corrected back upwards, though it is important for traders to note that the price movement is likely to be highly affected by the US employment figures which are due this afternoon. 

A number of important economic and political events are in the focus of investors’ attention, but the main one is the meeting of the Bank of England. The regulator expectedly kept the interest rate at 0.10%, and the volume of asset purchases at 875 billion pounds. However, officials said the UK economy is recovering faster than previously expected, boosted by Fiscal Policy and the opening of the economy once again. The regulator raised its forecast for the Gross Domestic Product growth for the current year from 5.0% to 7.25%. A sharp economic growth will begin in Q2, when production should recover to pre-crisis levels. 

The April Services PMI released in the last 24 hours was strong. The indicator rose from 56.3 to 61.0 points at once, instead of the expected 60.1 points. This is the fastest growth in business activity in the past 7 years, and is based on the recovery in the retail and hospitality industry following the relaxation of quarantine restrictions. However, the strengthening of the Pound was held back by elections of the Scottish parliament. They may well be won by supporters of the country’s independence and its entry back into the EU. First Minister of Scotland, Nicola Sturgeon, has already promised to demand permission from London to hold a new referendum on independence. Most likely, this demand will not be met, which could lead to serious political tensions in the United Kingdom. It is vital for investors to be aware that political instability can weigh in a significant amount of strain on not only currencies, but regional assets. 

Data on the initial jobless claims released in the US was also positive. The indicator decreased from 590,000 to 498,000, instead of the expected reduction to 540,000. Generally, the improvement in the labor market has acquired the character of a trend, but it has a long way to go until it fully recovers. The pressure on the Dollar continues to be exerted by yesterday’s comments of American officials; Treasury Secretary, Janet Yellen, allowed a “slight hike” in interest rates in the near future to prevent overheating of the recovery economy. However, the market’s hopes for tightening monetary policy was dashed by Vice Fed Chairman, Richard Clarida, who said that the regulator should maintain current policy despite the economic recovery, and its temporary overheating will not be considered a reason for changing the course. Dovish tone by the central regulator in the US has strain price movements amongst US Dollar exchange rates. 

The US currency yesterday weakened against the Euro, Canadian Dollar and the Yen, but saw a slight increase against the Pound. When looking at the US Dollar Currency index we can see that the Dollar is increasing slightly today, but the bullish movement has only corrected 19% of the previous day’s decline. The British Pound weakened against all its major currency pairs the day before but is seeing mixed movements so far this morning. 

Today, the market is likely to take caution prior to opening new positions ahead of the publication of the US labor market report for April even though the forecasts are indeed optimistic. In particular, it is expected that the number of Nonfarm Payrolls will grow by 978,000 after rising by 916,000 in March. The Unemployment Rate for the first time in a long period may fall to 5.8%, compared to the current rate of 6% released the month before.

Resistance Levels: 1.39402, 1.39769

Support Levels: 1.38620, 1.38380



Disclaimer: This material is considered a marketing communication and does not contain, and should not be construed as containing investing advice or a recommendation, or an offer of or solicitation for any transactions in financial instruments or a guarantee or a prediction of future performance. Past performance is not a guarantee of or prediction of future performance.
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