Forex Market: GBP/USD rebounds from recent one-month lows as markets focus on fresh round of Brexit talks

GBP/USD rebounded from Friday’s one-month lows during early European trade on Monday, as a new round of negotiations on trade between the EU and the UK is expected to begin this week.

Despite that the UK economy is gradually reopening after lockdown restrictions, many analysts still view Brexit as the factor to have the most sizable impact on the Pound.

The European Union and the UK have so far achieved little progress in reaching an agreement on their future trading relationship.

“The story is almost the same since the Brexit referendum, Brexit is a massive hurdle on sterling prospects,” ING chief EMEA strategist Petr Krpata said.

“Given the uncertainty ahead, it means limited upside potential for sterling because until we have the clarity on the UK-EU trade deal and we know more details, money markets are unlikely to price out the probability of negative rates,” Krpata added.

June 30th is the last day when Britain will be able to request an extension of the transition period. Past that date, both sides need to reach an agreement prior to year-end, or Britain would be forced to trade with the EU and other countries under World Trade Organisation rules.

As of 6:54 GMT on Monday GBP/USD was edging up 0.38% to trade at 1.2383, bouncing from Friday’s one-month low of 1.2315. The major pair dipped 0.10% last week, extending losses from the previous two weeks.

On today’s macroeconomic front, at 8:30 GMT Bank of England will release its monthly report on mortgage approvals for May. The median estimate by experts points to an increase to 25,000 approved mortgages from 15,848 mortgages in April. The latter has been the lowest number of mortgages approved for house purchase since comparable series began in 1993.

At 14:00 GMT the National Association of Realtors will report on US pending home sales. Contracts to buy previously owned homes in the country probably increased 19.9% in May compared to April, according to estimates. In April, pending home sales plunged 21.8%, or at the steepest monthly rate on record. In annual terms, pending home sales went down 33.8% in April, or the most on record, due to the coronavirus crisis.

At 15:00 GMT Federal Reserve President for San Francisco Mary Daly is expected to speak at the NASPA Virtual Conference on Student Success in Higher Education.

And at 19:00 GMT Federal Reserve President for New York John Williams is scheduled to speak and serve as moderator at an Economic Club of New York event with IMF Managing Director Kristalina Georgieva.

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 24.3 basis points (0.243%) as of 6:15 GMT on Monday, up from 24.0 basis points on June 26th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.2363
R1 – 1.2410
R2 – 1.2485
R3 – 1.2533
R4 – 1.2581

S1 – 1.2288
S2 – 1.2240
S3 – 1.2166
S4 – 1.2091