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Forex Market: GBP/USD steadies after last week’s sharp drop, dollar supported as Evergrande concerns re-emerge, US Non-Farm Payrolls data in focus

After recording its fourth straight period of decline last week, GBP/USD was mostly steady during Monday’s European trade. Market players seemed to have focused on a sour UK outlook and the risk of both higher interest rates and inflation, disregarding hawkish rhetoric from Bank of England.

“Investors are judging the UK by its whole suite of fundamentals factors and movements in sterling suggest that many are not liking what they are seeing,” Rabobank strategist Jane Foley, was quoted as saying by Reuters.

“The UK no longer has an advantage on the vaccine front … and, while PM (Boris) Johnson likes to view Brexit as ‘done’, many businesses and commentators are only just starting to evaluate its impact.”

Meanwhile, the US Dollar remained firm against a basket of six major peers, hovering just below last Thursday’s one-year high, as concerns over China’s property sector resurfaced. China Evergrande said that it had requested trading in its shares to be halted due to pending announcement of a major transaction. Evergrande Property Services Group said that the announcement constituted “a possible general offer for shares of the company.” Concerns re-emerged that a possible collapse of the Chinese property developer could hamper China’s economy and weigh on global growth.

Investors will be paying a close attention to Friday’s US Non-Farm Payrolls report, which may indicate continued improvement in the labor market and add to the case for the Federal Reserve to begin stimulus tapering prior to the end of 2021. A consensus of analyst estimates points to job growth of 460,000 in September.

“The question is whether there is a number that alters the Fed’s view on tapering its bond purchases in November, and what a really weak or hot number means amid the backdrop of rising stagflation fears,” Chris Weston, Pepperstone’s head of research, said.

“If U.S. Treasuries find further buyers this week into Friday’s U.S. non-farm payrolls, the dollar may go on sale this week.”

As of 8:32 GMT on Monday GBP/USD was inching up 0.07% to trade at 1.3553, while moving within a daily range of 1.3532-1.3577. Last week the Forex pair slipped as low as 1.3412, which has been its weakest level since December 23rd 2020 (1.3347). The major currency pair has gained 0.60% so far in October, following a 2.05% loss in September.

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 -14.32 basis points (-0.1432%) as of 8:15 GMT on Monday, down from -12.6 basis points on October 1st.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.3518
R1 – 1.3602
R2 – 1.3660
R3 – 1.3744
R4 – 1.3828

S1 – 1.3459
S2 – 1.3375
S3 – 1.3317
S4 – 1.3259

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