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Market Analysis – GBPUSD

The Pound hit 1.4166 this week amid risk appetite and general weakness in the US Dollar following Friday’s employment report. The exchange rate reached is the highest in over two years after three consecutive bullish days. The price movement this morning is slightly lower than the market open, however, momentum has slightly built again during the start of the European session. Traders are looking to see if the asset will perform a lower swing low or if the price will correct back to yesterday’s highs. 

This morning’s data was positive for the British economy. The Gross Domestic Product in March grew by 2.1%; however, in quarterly and annual terms, the indicator is still in the negative zone and in relation to the previous quarter, a decline of 1.5% was recorded. In annual terms, the Gross Domestic Product is also negative and amounts to –6.1%. In turn, the volume of industrial production in March increased by 1.8%.

The gradual rollback of quarantine measures against the spread of COVID-19 in the UK undoubtedly acts as a catalyst for the recovery of the national economy and may provide additional support for the Pound in the medium term. British Prime Minister, Boris Johnson, confirmed that the next stage of easing the lockdown in the country will take place on May 17, as previously planned.

The Pound did come under pressure following the results of the parliamentary elections in Scotland where the victory was won by supporters of the independence of the region, pushing for a new referendum. The official UK authorities have not yet reacted in any way to the change in the political alignment, probably thinking over a further strategy of action. Over the past two days, a spokesman for Prime Minister Boris Johnson said the government is now busy fighting the pandemic and will not deal with Scotland for now. The government has advised they are not saying “never”, but neither “now”. April’s retail sales data published by the British Retail Consortium was positive. Year-on-year, the indicator increased by 7.3%. The largest growth was demonstrated by sales of clothing, furniture, and real estate.

However, even with taking the above into consideration the movement was massively facilitated by the Dollar, which is still pressured by weak April labor market data and is still prompting comments from officials. Experts see one of the reasons for the weak data in the refusal of citizens to look for work since they are satisfied with the increased amount of unemployment benefits. President Joe Biden said yesterday that he did not see a direct link between the financial support program and the slowdown in employment growth, but noted that citizens need to be presented with a choice whether to accept suitable vacancies, or lose the right to receive benefits. 

The head of the Chicago FRB, Charles Evans, said that the state of employment remains good, and next month investors will see a noticeable increase in performance. However, the official confirmed that key economic indicators, inflation and employment, are still lagging behind levels that would allow the US Federal Reserve to begin tightening monetary policy. Yesterday, the US Treasury opened state governments access to a $350 billion aid package. The injection of additional financial resources into the economy will put additional pressure on the US Dollar according to analysts.

Over the last 24-hours the US dollar had weakened against its main competitors including the Euro, the Pound, and the Yen. When looking at the US Dollar Index over the past day we can see the currency is finding some support as per previous similar levels, but overall the currency remains weak. Today, the Pound is strengthening against the US dollar, but is weakening against the Yen and the Euro.

Investors are awaiting the release of US inflation data today. The most important indicator will be the Consumer Price Index excluding Food and Energy. It is expected to be 2.3% YoY, which is higher than the US Fed’s target of 2%. Holding the indicator above 2% for several months in a row may push the regulator to tighten monetary policy, which will have a positive effect on USD rate.




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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