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Forex Market: GBP/USD hits a fresh 11-week high despite pro-independence parties’ election win in Scotland, dollar plunges on disappointing employment data

GBP/USD extended Friday gains and hit a fresh 11-week high on Monday, with market players’ focus being on the UK economic recovery rather than the possibility of another referendum on independence in Scotland.

Pro-independence parties won a majority in Scottish parliament over the weekend, which paved the way for a political, legal and constitutional battle with British PM Boris Johnson over the future of the United Kingdom.

Yet, the Sterling’s appreciation was due more to a broadly weaker US Dollar, according to analysts.

“The USD is in retreat and the UK economic recovery is turning for the better,” National Australia Bank strategist Gavin Friend wrote in a report, cited by Reuters.

An independence vote is “a long way down the road, and in our view not something to sustainably affect GBP right now,” Friend noted, while adding he expects GBP/USD to appreciate to 1.4500 by the end of June.

The US Dollar extended losses against a basket of six major peers and hit a more than two-month trough on Monday, after considerably weaker-than-anticipated US payrolls data cooled investor expectations of a rate hike by the Federal Reserve and shifted the focus to CPI inflation numbers due out on Wednesday.

Employers in all sectors of US economy, excluding the farming industry, added 266,000 new jobs in April, or well below expectations of 978,000 job growth. At the same time, the rate of unemployment rose to 6.1% in April from 6.0% in March, confounding expectations of a drop to 5.8%.

“The USD’s choppy downtrend can continue this week,” Commonwealth Bank of Australia strategist Kim Mundy wrote in an investor note.

“The unexpected slow recovery in the U.S. labour market reinforces the FOMC’s patient approach to monetary policy,” Mundy noted, and “the improving global economic outlook is a medium-term weight on the USD.”

Federal Reserve Chair Jerome Powell had previously said that US labor market was still far from where it needs to be in order to begin discussing monetary policy tightening, while a short-term surge in inflation will probably be temporary.

As of 9:21 GMT on Monday GBP/USD was gaining 0.72% to trade at 1.4087, after earlier touching an intraday high at 1.4096, or its strongest level since February 25th (1.4182). The major currency pair has risen 1.96% so far in May, following another 0.28% gain in April.

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 10.9 basis points (0.109%) as of 8:15 GMT on Monday, down from 12.1 basis points on May 7th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.3957
R1 – 1.4034
R2 – 1.4083
R3 – 1.4160
R4 – 1.4238

S1 – 1.3908
S2 – 1.3831
S3 – 1.3783
S4 – 1.3734

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