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Forex Market: GBP/USD trades in narrow range amid subdued risk sentiment ahead of Federal Reserve meeting

GBP/USD was stuck within a tight range on Monday, as risk sentiment remained subdued amid surging new coronavirus infections and a drop in Asian shares ahead of the Federal Reserve’s two-day policy meeting this week.

Against a basket of six major peers, the US Dollar was little changed on the day, but in proximity to a 3 1/2-month peak of 93.194, registered last week. The DXY has risen almost 4% from its May 25th low, as a rebound in US economy added to expectations that the Federal Reserve may begin tapering asset purchases as soon as this year.

According to Commonwealth Bank of Australia, the possibility of the central bank taking a step further towards tapering at the conclusion of its meeting on Wednesday may sustain US Dollar strength this week.

“We expect the FOMC to drop ‘substantial’ from ‘substantial further progress’,” in its guidance on the necessary conditions for the labor market before removing monetary support, Joseph Capurso, a strategist at Commonwealth Bank of Australia, wrote in an investor note, cited by Reuters.

“Removing ‘substantial’ will signal the FOMC believes it will soon be appropriate to taper asset purchases,” he added, while suggesting a possible announcement of a scale back in September.

Meanwhile, the risks stemming from the spread of COVID-19’s Delta variant continue rising globally, with Australia’s most populous state of New South Wales reporting a surge in new infections on Monday despite stay-at-home order. Japan also reported a rise in new cases, while China registered the highest number of new infections since late January.

The latest CFTC data showed that speculators were net long the US Dollar for the first time since March 2020. The value of the net long dollar position was $399.69 million during the week ended July 20th, compared with a net short position of $4.06 billion in the prior week.

As of 8:44 GMT on Monday GBP/USD was edging up 0.19% to trade at 1.3769, while moving within a daily range of 1.3737-1.3773. The major currency pair has retreated 0.43% so far in July, following another 2.66% drop in June.

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 14.86 basis points (0.1486%) as of 8:15 GMT on Monday, up from 12.2 basis points on July 23rd.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.3747
R1 – 1.3775
R2 – 1.3808
R3 – 1.3835
R4 – 1.3863

S1 – 1.3715
S2 – 1.3687
S3 – 1.3655
S4 – 1.3622

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