Forex Market: GBP/USD touches fresh one-month highs on Brexit talk optimism, risk sentiment weighs on dollar

GBP/USD appreciated for a fifth straight day on Wednesday and moved within a tight range close to fresh one-month highs in late European trade, as the US Dollar remained broadly weaker and the Pound was still supported by indications that Britain may be open to a compromise on sticking points in the latest round of Brexit negotiations.

The EU and Britain may be able to agree on a compromise on fisheries and trade rules, as the fourth round of virtual talks on Brexit is already underway. Yet, there have been little signs of a breakthrough.

“GBP has enjoyed some temporary out-performance on reports of more flexibility in the UK Brexit position, but we doubt GBP can hold onto gains,” ING analysts wrote in an investor note.

Final data by IHS Markit/CIPS revealed earlier Wednesday an upward revision in the UK Services PMI for May to 29.0. Still, however, the report indicated the second-sharpest rate of contraction in the services sector since the survey was initiated in July 1996. Travel, tourism and leisure companies were the most severely affected by the pandemic.

Meanwhile, elevated risk sentiment continued to pressure the US Dollar, despite continuing civil unrest in the US, amid restrictive measure easing across the globe and prospects of further stimulus.

As of 11:50 GMT on Wednesday GBP/USD was edging up 0.15% to trade at 1.2570, after touching an intraday high of 1.2612 during early Asian trade, or a level not seen since April 30th (1.2644).

On today’s macroeconomic front, a report by Automatic Data Processing Inc at 12:15 GMT may show employers in the US non-farm private sector fired 9.000 million workers in May, as expected by analysts. In April, private businesses fired the staggering 20.236 million employees, which marked the largest drop in US employment on record, due to the coronavirus pandemic-related restrictive measures. 16 million jobs were lost in the service-providing sector in April and 4.22 million jobs – in the goods-producing sector, ADP data revealed.

A separate report by the Institute for Supply Management at 14:00 GMT may show activity in the US sector of services continued to contract in May. The respective Non-Manufacturing Purchasing Managers’ Index is expected to come in at a reading of 44.0, up from 41.8 in April. April’s data indicated the first contraction in the sector since December 2009 and the steepest one since March 2009, as the sub-indexes of business activity, new orders and employment all dropped. Respondents in the survey expressed concerns over the continuing coronavirus impact on the supply chain, operational capacity, human resources and financial health.

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 18.2 basis points (0.182%) as of 10:15 GMT on Wednesday.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.2535
R1 – 1.2592
R2 – 1.2633
R3 – 1.2689
R4 – 1.2746

S1 – 1.2494
S2 – 1.2438
S3 – 1.2397
S4 – 1.2356

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