Forex Market: GBP/USD rebounds from a two-week low in light trade ahead of key macro data, BoE policy meeting

GBP/USD bounced from a two-week low at the start of a week heavy on major macroeconomic data and central bank meetings.

Trade volumes were lighter due to holidays in Japan, China and the UK, while market volatility – subdued.

The Bank of England is scheduled to hold a policy meeting on Thursday, with asset purchases and a possible upward revision of economic outlook being the main focus.

Meanwhile, against a basket of six major peers, the US Dollar held steady on Monday, with the DXY being at 91.260. Market players were looking for clues over US inflation outlook and the central bank’s response.

On Friday the Dollar Index surged as much as 0.73% and hit highs not seen since April 22nd following upbeat US consumption data.

“We expect the dollar to trend lower because of the improving global economic outlook,” Commonwealth Bank of Australia analyst Kim Mundy was quoted as saying by Reuters.

“Nevertheless, the risk of short bouts of dollar strength remain if solid data push U.S. Treasury yields materially higher.”

Last Friday the Fed President for Dallas, Robert Kaplan, called for the start of a discussion over policy tightening, which was not in line with what the Fed Chair Jerome Powell had already made clear – that it is still too early to begin such a discussion.

Powell is scheduled to speak later today and will be followed by speeches by other Fed officials later this week.

As of 9:09 GMT on Monday GBP/USD was edging up 0.29% to trade at 1.3856, after earlier touching an intraday low at 1.3801, or its weakest level since April 16th (1.3716). The major currency pair rose 0.28% in April, which marked its sixth gain in the past seven months.

In terms of economic calendar, today market players will be paying attention to the final data on US manufacturing sector activity for April by Markit Economics due out at 13:45 GMT as well as to the April report on manufacturing sector conditions by the Institute for Supply Management due out at 14:00 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 8.88 basis points (0.0888%) as of 8:15 GMT on Monday, down from 9.0 basis points on April 30th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.3859
R1 – 1.3915
R2 – 1.4015
R3 – 1.4071
R4 – 1.4127

S1 – 1.3759
S2 – 1.3703
S3 – 1.3604
S4 – 1.3504