Forex Market: GBP/USD recoups earlier losses on upbeat UK data, while negative interest rate uncertainty continues to persist

GBP/USD pared earlier losses during the late phase of the European trading session on Thursday, as better-than-expected UK manufacturing and services numbers by IHS Markit introduced some optimism following a string of dismal macro data released earlier.

Preliminary data showed that UK’s Manufacturing Purchasing Managers’ Index rebounded more than expected in May to a reading of 40.6 from a record low level of 32.6 in April. Yet, this has been the second-sharpest contraction in manufacturing activity since February 2009.

The UK Services PMI also came in better than anticipated in May, rebounding to 27.8, according to preliminary data, from a record low level of 13.4 in April. Still, the country’s services sector contracted at the second-fastest rate since the survey was initiated in July 1996.

Despite these upbeat data points, it still remains uncertain whether Bank of England may cut borrowing costs to sub-zero levels in order to drag the economy out of the coronavirus-caused recession. Analysts have already expressed opposing views over the appropriateness of such a move. On the other hand, BoE Governor Andrew Bailey said that he was less opposed to the idea of using negative rates than he was prior to the COVID-19 pandemic.

As of 11:38 GMT on Thursday GBP/USD was edging down 0.06% to trade at 1.2230, after touching an intraday low of 1.2186 during the late phase of the Asian session.

In terms of economic calendar, today’s focus will be on the US Labor Department’s weekly report on jobless claims at 12:30 GMT. The number of people in the country, who filed for unemployment assistance for the first time during the business week ended May 15th, probably decreased to 2.400 million, according to market expectations, from 2.981 million in the preceding week. The latter has been the lowest number of claims since the beginning of the coronavirus crisis in March.

Also at 12:30 GMT, the Federal Reserve Bank of Philadelphia will report on manufacturing activity in the area. The Philadelphia Fed Manufacturing Index probably improved to -41.5 in May, according to market consensus, from a level of -56.6 in April. The latter has been the lowest index reading since July 1980, as the sub-indexes of new orders and current shipments plunged to their lowest levels on record. Improving conditions would support market sentiment.

At 14:00 GMT the National Association of Realtors will report on US existing home sales. The respective index probably dropped 18.9% to a seasonally adjusted annual level of 4.30 million units in April compared to March, according to a consensus of analyst estimates. In March, sales of previously owned houses decreased 8.5%, or at the steepest monthly rate since November 2015, to reach 5.27 million units. Sales of single-family houses slumped 8.1% in March, while condominium and co-op sales plummeted 11.7%.

Also at 14:00 GMT, New York Fed President John Williams will provide remarks in a webinar discussion on how the New York Fed is working to support the flow of credit to households and businesses and the overall US economy amid the coronavirus crisis.

At 17:00 GMT Fed Vice Chair Richard Clarida will speak on US economic outlook and monetary policy during an online discussion hosted by the New York Association for Business Economics.

And at 18:30 GMT Federal Reserve Chair Jerome Powell will give opening remarks at Fed Listens: How is COVID-19 Affecting Your Community? event, via a webcast.

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 21.0 basis points (0.210%) as of 10:15 GMT on Thursday. It has been the highest spread since May 13th (21.1 basis points).

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.2249
R1 – 1.2276
R2 – 1.2315
R3 – 1.2342
R4 – 1.2370

S1 – 1.2210
S2 – 1.2183
S3 – 1.2144
S4 – 1.2106

The major pair may receive immediate support at the 20-period EMA (1.2221) and then, at the S1 pivot level of 1.2210. Today’s low of 1.2186 may serve as the next level of support. Resistance may be expected in the area around May 20th high (1.2288) and then, at the high from May 19th (1.2297).