Forex Market: GBP/USD eases from two-week highs ahead of US, UK CPI inflation reports

GBP/USD eased from a fresh two-week high during Monday’s European session amid lack of catalysts to sustain last week’s move up, while investors now turn their attention to the upcoming key inflation numbers from the United States and the United Kingdom.

The pair will likely continue trading within a tight range today ahead of the US Treasury 10-year auction later on Monday. Additionally, Tuesday’s 30-year bond auction will also be in focus.

Meanwhile, against a basket of six major peers, the US Dollar was a notch stronger on Monday, with the DXY hovering just above a one-week low of 92.083.

The dollar lost certain ground late last week, as investor risk sentiment showed signs of recovery, but still, new concerns over the pace of global economic rebound from the pandemic are now being assessed amid the spread of the more infectious Delta variant of the virus.

Monday’s economic calendar does not offer much in terms of relevant data and market focus is likely to set on Tuesday’s US CPI inflation report and on a testimony by Fed Chair Jerome Powell on Wednesday.

US core CPI is expected to rise at a monthly rate of 0.4% in June and at an annual rate of 4.0%, according to a consensus of analyst estimates. In case consumer inflation appears to be more persistent than previously anticipated, this could add to expectations of an earlier exit from the Federal Reserve’s monetary stimulus and could support the US Dollar.

“If we see strong data, the Fed could bring forward their projection for their first rate hike further from their current forecast of 2023. That would also mean they have to finish tapering earlier,” Shinichiro Kadota, senior Forex strategist at Barclays, was quoted as saying by Reuters.

At the same time, UK core CPI is expected to rise at an annual rate of 2.0% in June, while the general CPI – at an annual rate of 2.2%, according to median analyst estimates. The official numbers are due out on Wednesday.

As of 8:59 GMT on Monday GBP/USD was edging down 0.29% to trade at 1.3862, after earlier touching an intraday high at 1.3910. The latter has been the pair’s strongest level since June 28th (1.3939). The major currency pair has gained 0.25% so far in July, following a 2.66% drop in June.

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 13.22 basis points (0.1322%) as of 8:15 GMT on Monday, up from 12.8 basis points on July 9th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.3854
R1 – 1.3952
R2 – 1.4001
R3 – 1.4100
R4 – 1.4198

S1 – 1.3804
S2 – 1.3706
S3 – 1.3657
S4 – 1.3607