Forex Market: GBP/USD extends Friday gains as UK economy re-opens, dollar benefits from Asia’s virus concern

GBP/USD was a notch stronger at the start of the new week, while trading not far from last week’s 2 1/2-month high of 1.4167, as the British government took another step towards economic re-opening by further easing COVID-19-related restrictive measures.

Cafes, bars and restaurants will be allowed to service customers indoors, while an international travel ban has been lifted.

“It has been a well-telegraphed move, but major re-opening in the UK today should continue to be welcomed by UK asset markets and the pound,” ING strategists wrote in an investor note.

“Despite threats from the Indian variant, the scheduled re-opening will keep expectations of a summer UK recovery on track and feed into the BoE’s upbeat assessment of the UK activity outlook.”

Meanwhile, against a basket of six major peers, the US Dollar gained modestly on Monday due to concerns stemming from fresh COVID-19 outbreaks in Singapore and Taiwan, locations where the virus spread had been contained.

Market players now turn their attention to the FOMC Minutes from the policy meeting in April, scheduled to be released on Wednesday, for clues over the central bank’s stance.

“We expect the minutes … to reiterate that policymakers consider the pick up in inflation to be transitory,” Kim Mundy, currency strategist at the Commonwealth Bank of Australia, was quoted as saying by Reuters.

“The upshot is that we do not expect the (Fed) to consider tapering its asset purchases soon. The dollar is expected to resume its downtrend this week after last week’s CPI-inspired boost,” Mundy added.

As of 9:15 GMT on Monday GBP/USD was edging up 0.10% to trade at 1.4103, while moving within a daily range of 1.4078-1.4119. Last week it climbed as high as 1.4167, or its strongest level since February 25th (1.4182). The major currency pair has risen 2.06% so far in May, following another 0.28% gain in April.

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 6.86 basis points (0.0686%) as of 8:15 GMT on Monday, down from 8.1 basis points on May 14th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.4079
R1 – 1.4121
R2 – 1.4154
R3 – 1.4196
R4 – 1.4239

S1 – 1.4046
S2 – 1.4003
S3 – 1.3971
S4 – 1.3938