Forex Market: GBP/USD extends losses as surging COVID-19 cases, new trade frictions bolster US Dollar’s haven appeal

GBP/USD extended losses from the prior trading day on Thursday, as rising new coronavirus cases in the United States and new frictions on trade dampened optimism over swift economic recovery, urging a move away from riskier assets.

Daily new COVID-19 infections in the US reached almost 36,000, the latest data showed, nearing a record set in late April.

“The market is getting worried that this is not just a temporary spike. Things could be actually getting worse, and with the U.S. being the world’s largest economy, any further economic shutdowns would have serious repercussions,” Bart Wakabayashi, Tokyo Branch manager of State Street Bank and Trust, said.

Additionally, reports of the US considering a change in tariffs on various EU goods as part of a 16-year dispute over aircraft subsidies also weighed on risk sentiment. The US Trade Representative’s office added items, including beer, gin and black olives, worth $3.1 billion to a list of European goods eligible for duties.

The Pound slid on Wednesday after EU’s chief negotiator Michel Barnier said that Britain had to send “clear signals” of its willingness to secure a deal with the bloc. He added that an agreement between the two sides was still possible prior to year-end. Barnier also noted that “the moment of truth” would come in October, when a draft deal has to be finalized so that it can be ratified by all the 27 EU member states in time for 2021.

According to Bank of America analysts, the Sterling should now be considered more as an emerging market currency rather than as a core G10 currency.

“In our view, Brexit is likely to permanently alter the way in which investors view the pound,” BofA analysts wrote in an investor note.

“We believe GBP is in the process of evolving into a currency that resembles the underlying reality of the British economy: small and shrinking with a growing dual deficit problem similar to more liquid EM currencies.”

As of 6:55 GMT on Thursday GBP/USD was edging down 0.10% to trade at 1.2408, after touching an intraday low of 1.2404 during late Asian session. The major pair has trimmed gains for the week, now being up 0.50%.

Today’s market focus will be on the US GDP report scheduled to be released at 12:30 GMT. The final estimate of the US Gross Domestic Product probably pointed to an annualized rate of contraction of 5.0% in the first quarter of 2020, according to market expectations. If so, it would confirm the second GDP estimate, reported on May 28th. It has been the steepest economic contraction since Q4 2008. In Q4 2019, the economy expanded at an annualized rate of 2.1%, according to final data.

Also at 12:30 GMT the US Labor Department will report on jobless claims. The number of people in the country, who filed for unemployment assistance for the first time during the business week ended June 19th, probably eased to 1,300,000, according to expectations, from 1,508,000 in the preceding week. The latter has been the lowest number of claims since the coronavirus crisis began in March.

At 13:30 GMT Federal Reserve President for Dallas Robert Kaplan is to participate in moderated question-and-answer session at the Reinventing Bretton Woods Committee Webinar: “The World Economy Transformed.”

At 15:00 GMT Federal Reserve President for Atlanta Raphael Bostic is scheduled to speak on “Florida’s Economic Relaunch — What’s Next?” during a Florida Chamber of Commerce webinar.

And at 16:00 GMT Federal Reserve President for Cleveland Loretta Mester is to give welcome remarks during a webinar hosted by the Federal Reserve Bank of Cleveland aimed to answer borrowers’ questions about the Paycheck Protection Program.

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 26.5 basis points (0.265%) as of 6:15 GMT on Thursday, down from 26.6 basis points on June 24th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.2459
R1 – 1.2504
R2 – 1.2588
R3 – 1.2633
R4 – 1.2678

S1 – 1.2376
S2 – 1.2331
S3 – 1.2248
S4 – 1.2164

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