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Forex Market: GBP/USD trades near a 5-week low as markets await US CPI, UK GDP data prints

GBP/USD hovered just above a five-week trough on Monday after the Bank of England left the benchmark interest rate at a record low level of 0.10% in November and also said it expected UK economy to grow “at a slower pace than projected in the August Report” during the third quarter.

BoE policy makers expect the GDP “to grow by around 1.5% in 2021 Q3 and by 1% in Q4 in the November Report projections,” while growth is likely “to remain below its pre-Covid level until 2022 Q1.”

The official UK GDP data will be released on Thursday.

The major currency pair retreated over 1.3% last week, its worst weekly performance since mid-August, dragged down by a sharp drop in UK bond yields following BoE’s policy decision.

Meanwhile, against a basket of six major peers, the US Dollar was holding just below a more than one-year peak of 94.634 following robust October Non-Farm Payrolls data, which also included upward revisions to the prior months.

Tight labor market coupled with global supply chain disruption could lead to another high reading for US CPI inflation, with the official report scheduled to be released on Wednesday. A surprisingly high reading is quite likely to reignite talk of an earlier rate hike by the Federal Reserve.

“Another acceleration in the monthly annualized trimmed CPI will reinforce our view that the Fed is behind the curve,” Kim Mundy, a senior economist & currency strategist at CBA, was quoted as saying by Reuters.

“The longer the FOMC waits to tighten monetary policy, the greater the risk the FOMC tightens more to bring inflation back under control.”

At least six Federal Reserve officials are scheduled to make speeches on Monday, with investors probably focusing mostly on Vice Chair Richard Clarida.

As of 9:29 GMT on Monday GBP/USD was inching down 0.05% to trade at 1.3488. Last Friday the Forex pair slipped as low as 1.3424, which has been its weakest level since September 30th (1.3415).

The major currency pair appreciated 1.57% in October, while marking its best monthly performance since May.

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 1.26 basis points (0.0126%) as of 9:15 GMT on Monday, up from 0.3 basis points on November 5th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.3476
R1 – 1.3527
R2 – 1.3560
R3 – 1.3612
R4 – 1.3663

S1 – 1.3442
S2 – 1.3391
S3 – 1.3357
S4 – 1.3324

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