Forex Market: GBP/USD trades near three-week highs as Britain relaxes lockdown restrictions, Brexit talks again in focus

GBP/USD remained in proximity to fresh three-week highs during late European trade on Monday, as the US Dollar was mostly weaker against its major peers while Britain eased certain lockdown restriction-related measures.

New rules, which came into effect on June 1st and are not valid for Wales, Scotland and Northern Ireland, allow groups of up to six people to meet outdoors in England, while stern social distancing guidelines will still have to be observed.

Meanwhile, a new round of trade negotiations between Britain and the EU is expected to commence this week, with Britain having a deadline until July 1st to demand an extension to the current transition period.

“We expect the pound to continue to trade at weaker levels in the near-term unless there is a surprise breakthrough in Brexit talks and/or the BoE clearly rules out negative rates after completing their ongoing review of policy options,” Lee Hardman, currency analyst at MUFG, wrote in an investor note.

On the macroeconomic front, a report by IHS Markit/CIPS showed earlier Monday that activity in UK’s manufacturing sector had contracted for a third straight month in May, but yet, the rate of contraction was much slower compared to April. The respective PMI came in at a final reading of 40.7, up from a preliminary estimate of 40.6, as production, new orders and export sales dropped less sharply compared to April’s record contraction rates.

As of 12:12 GMT on Monday GBP/USD was gaining 0.37% to trade at 1.2396, after touching an intraday high of 1.2426 during early European trade. It has been a level not seen since May 11th, when the major pair registered a high of 1.2438.

In terms of economic calendar, today market players will be also expecting the report on US factory activity by the Institute for Supply Management, scheduled at 14:00 GMT. Activity in United States’ manufacturing industry probably contracted for a third consecutive month in May, with the respective Purchasing Managers’ Index coming in at a reading of 43.0, according to market expectations. In April, the gauge was reported at 41.5, indicating the steepest rate of contraction since April 2009, as the sub-index of new orders registered its lowest level since December 2008, while the sub-index of employment dropped to its lowest level since February 1949.

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 20.6 basis points (0.206%) as of 10:15 GMT on Monday. It has been the lowest spread since May 28th (19.6 basis points).

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.2345
R1 – 1.2400
R2 – 1.2449
R3 – 1.2503
R4 – 1.2558

S1 – 1.2296
S2 – 1.2241
S3 – 1.2192
S4 – 1.2143

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