GBP/USD traded within a narrow range amid calm trade on Monday due to the Spring Bank Holiday in the United Kingdom and the Memorial Day federal holiday in the United States.
The pair looked set to register its fastest monthly rate of increase since November 2020.
Last Friday the US Dollar briefly touched a two-week high at 90.441 against a basket of six major peers after a key measure of inflation signaled a faster increase in US prices than anticipated in April.
The core personal consumption expenditure price index, a preferred measure of inflation by the Federal Reserve, registered a 3.1% year-on-year growth in April, while exceeding market consensus of a 2.9% increase and the Fed’s 2% inflation objective. It has been the sharpest annual price increase since 1992 due to a recovery from the pandemic-induced recession and supply disruptions.
Although the macro data seemed to have had little effect on market expectations about the Federal Reserve’s current pace of asset purchases, some analysts believe that more signs of economic strength may trigger debate over scaling the bond-purchasing program back.
Others warned of possible wage inflation.
“If we see inflation consistently hitting above 2%, that could put upward pressure on wages. There’s risk inflation trending higher than expected,” Masafumi Yamamoto, chief currency strategist at Mizuho Securities, was quoted as saying by Reuters.
The Dollar Index remained little changed at 90.038 on Monday.
Meanwhile, the yield on US 10-year government bonds dropped to 1.581% on Friday, while marking a second consecutive month of decline. Yields have previously risen at sharp rates due to inflation concerns.
As of 8:49 GMT on Monday GBP/USD was inching down 0.09% to trade at 1.4167, while moving within a daily range of 1.4164-1.4201. The major currency pair has risen 2.57% 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 8.66 basis points (0.0866%) as of 8:15 GMT on Monday, up from 7.6 basis points on May 28th.
Daily Pivot Levels (traditional method of calculation)
Central Pivot – 1.4175
R1 – 1.4214
R2 – 1.4248
R3 – 1.4287
R4 – 1.4326
S1 – 1.4142
S2 – 1.4103
S3 – 1.4069
S4 – 1.4035
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