GBP/USD came off Thursday’s one-week high and remained stuck in a narrow daily range below the 1.2500 mark on Friday, as COVID-19 resurgence in the United States and diplomatic tensions between Beijing and Washington over civil liberties in Hong Kong prompted caution among market players.
Meanwhile, a Friday meeting between British and EU chief Brexit negotiators has been cancelled.
July is going to be a critical month for the Sterling, since by its end there should be clarity if Britain will reach an agreement on trade with the EU or not.
“The second to last week and the last week of July are going to be the extreme Brexit crunch point,” Stephen Gallo, European head of FX strategy at BMO, said.
“If there’s not movement by the week of 20th or the week of 27th, that may be the second wave of selling in sterling,” Gallo added.
On the macroeconomic front, US economy, excluding the farming industry, reportedly added 4.8 million jobs in June, or the most since comparable series began in 1939 and well above market expectations of a 3.0 million jobs gain. The rate of unemployment in the country eased further to 11.1% in June from 13.3% in May, as the number of unemployed persons dropped by 3.2 million to 17.8 million and the number of employed persons grew by 4.9 million to 142.2 million.
But jobs data-driven optimism faded, after the United States reported over 55,000 new COVID-19 infections on Thursday, or the sharpest single-day surge since the pandemic began. New confirmed cases of the illness continued to surge in 37 out of 50 states. Florida alone reported over 10,000 new infections, or the sharpest daily increase in that state so far. The new wave of infections has already prompted several states to postpone their reopening plans after months of lockdown restrictions.
All these developments seem to have heightened the safe haven appeal of the US Dollar, as the currency held gains against a basket of six major peers on Friday.
As of 7:33 GMT on Friday GBP/USD was edging down 0.11% to trade at 1.2454, while moving within a daily range of 1.2450-1.2486. Yet, the major pair was poised to snap a three-week streak of losses, being up 0.98% for the current week.
In terms of economic calendar, at 8:30 GMT IHS Markit/CIPS will release the final data on UK services sector activity for June. The respective Purchasing Managers’ Index probably came in at a final 47.0, according to market expectations, thus, confirming the preliminary estimate. The preliminary data indicated the slowest rate of contraction in services since the start of the downturn in March. In terms of activity, financial intermediation registered the best performance in June, followed by transport & communication services amid rising demand after the gradual reopening of businesses.
Markets in the United States will remain closed on Friday due to the observation of the July 4th Independence Day federal holiday.
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 26.1 basis points (0.261%) as of 6:15 GMT on Friday, up from 25.3 basis points on July 2nd.
Daily Pivot Levels (traditional method of calculation)
Central Pivot – 1.2485
R1 – 1.2513
R2 – 1.2558
R3 – 1.2587
R4 – 1.2615
S1 – 1.2440
S2 – 1.2411
S3 – 1.2366
S4 – 1.2321