Forex Market: GBP/USD set for third straight weekly gain as BoE plays down negative rate prospects, US NFP report awaited

GBP/USD was set to record its third straight week of gains, as the major pair touched highs not seen since mid-March on Friday, on the back of broadly weaker US Dollar and after a Bank of England official played down prospects of interest rates going below zero.

During a Bloomberg webinar, Bank of England’s Executive Director for Markets, Andrew Hauser, said on Thursday that interest rates were not likely to enter sub-zero territory in the near-term.

“There’s practical challenges of doing it, even if you thought it was the right thing to do, it’s not going to happen in the near-term,” Hauser said. He added that the central bank was currently examining evidence on the impact of negative rates from the Eurozone and Japan.

There have also been indications by other BoE officials that cutting rates below zero is not imminent.

According to Kit Juckes, a strategist at Societe Generale, about 70% of the Pound’s appreciation on Friday was due to fading negative rate concerns and the remaining 30% – due to US Dollar weakness. The Dollar has lost safe haven appeal due to growing optimism among market players over economic recovery, supported by some of the recent data points from the US, China and the Euro area.

Meanwhile, the fourth round of EU-UK trade negotiations is expected to conclude on Friday, with Britain having a deadline until June 30th to request an extension of the current transition period.

As of 11:35 GMT on Friday GBP/USD was gaining 0.39% to trade at 1.2645, after touching an intraday high of 1.2690 during early European session, or a level not seen since March 12th (1.2849). The pair has appreciated more than 2.30% so far this week, while being poised for the best performance since the week ended on March 27th.

Today’s market focus will be on the more comprehensive non-farm payrolls report, which reflects employment in US public and private sectors. All segments of the US economy, excluding the farming industry, probably lost 8.0 million jobs in May, according to market expectations, after 20.537 million jobs were lost in April. The latter has been the sharpest monthly job loss rate ever recorded, which brought employment in the country to 131 million, or the lowest level since February 2011.

At the same time, the US rate of unemployment probably surged to 19.8% in May, according to estimates. In April, it was reported at 14.7%, or the highest rate in the history of the series. The official government report is due out at 12:30 GMT.

Bond Yield Spread

The spread between 2-year US and 2-year UK bond yields, which reflects the flow of funds in a short term, equaled 21.2 basis points (0.212%) as of 10:15 GMT on Friday, up from 18.9 basis points on June 4th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.2577
R1 – 1.2653
R2 – 1.2709
R3 – 1.2785
R4 – 1.2861

S1 – 1.2520
S2 – 1.2444
S3 – 1.2387
S4 – 1.2330