Forex Market: GBP/USD extends Friday losses on dollar strength, hedge funds most bearish on Sterling since June 2020

GBP/USD was a notch weaker at the start of the new week, as the US currency remained underpinned by bets the Federal Reserve could tighten monetary policy sooner than expected.

A flight to safety amid rising COVID-19 infections, especially in Europe, also supported the dollar.

Meanwhile, Pound traders’ focus strongly set on Bank of England’s monetary policy meeting in December, after the central bank wrong-footed many investors earlier this month when it did not raise interest rates from the current record low level of 0.10%.

BoE Governor Andrew Bailey told the Sunday Times newspaper his concern on the inflation outlook was that it could remain “elevated for longer.” Still, according to Bailey, there is a chance that inflation may not be as persistent as expected.

“Market pricing for a December BoE rate hike was not materially impacted by BoE Governor Bailey’s somewhat dovish comments on the weekend,” CBA analysts wrote in an investor note.

“Bailey noted that the risks to the BoE’s inflation forecasts were ‘two‑sided’. His comments suggest that there may be a higher hurdle to a December rate hike than many expect.”

Amid the confusion over the BoE’s guidance, the latest futures data revealed hedge funds were the most bearish on the Sterling since June 2020, while Pound selloffs had been the largest since 2007.

Data from the Commodity Futures Trading Commission showed hedge funds and speculators had bolstered their net short sterling position to 31,599 contracts during the week to November 16th from 12,093 contracts in the prior week.

As of 10:40 GMT on Monday GBP/USD was inching down 0.06% to trade at 1.3433, while moving within a daily range of 1.3419-1.3450. Last Thursday the Forex pair rose as high as 1.3513, its strongest level since November 10th. The major currency pair has retreated 1.81% so far in November, following a 1.57% gain in October.

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 5.98 basis points (0.0598%) as of 9:15 GMT on Monday, up from 1.4 basis points on November 19th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.3453
R1 – 1.3499
R2 – 1.3555
R3 – 1.3601
R4 – 1.3647

S1 – 1.3396
S2 – 1.3350
S3 – 1.3294
S4 – 1.3237