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Forex Market: GBP/USD off near 11-month lows as investors focus on a new set of macro data, Brexit impasse over Northern Ireland

GBP/USD was mostly steady on Monday, while recovering from Friday’s near 11-month low, as investors were waiting for fresh clues on both the US and the UK economy after placing bets last week for a first rate hike by the Federal Reserve by July 2022.

Market players will be also on the watch for any comments coming out of a virtual summit between US President Joe Biden and Chinese leader Xi Jinping later today.

On the macroeconomic front, a key release this week will be the US retail sales report, due out tomorrow, especially after the latest survey revealed US consumer sentiment had decreased to a decade low in November, affected by red-hot inflation.

Last Friday the US Dollar extended gains against a basket of six major peers and hit highs not seen since July 2020, after the US reported the sharpest annual increase in CPI inflation since 1990 in October.

The dollar index “has shifted into higher gears” after last week’s “blowout” inflation numbers, Westpac strategists wrote in a research note, while adding that Fed stimulus tapering, Biden administration’s infrastructure spending and a tightening labor market also boosting the US currency’s appeal.

“Retail sales this week are likely firm as the economy consigns the Delta-driven soft patch to the rear view mirror,” they said, while any DXY dips into the mid-93 level may be an opportunity to go long.

Meanwhile, Pound traders will be paying a close attention to a flurry of UK macro data this week, including reports on employment, inflation and retail sales, which may provide clues whether the Bank of England will hike interest rates next month. Market players see a 32.5% chance of a target rate hike to 0.20% and a 67.5% chance of a hike to 0.30% from the current 0.10% level.

Negotiations over post-Brexit trade arrangements for Northern Ireland will also be on investors’ radar.

“The FX market has still been quite reluctant to price in any Brexit-related risk premium on GBP, despite multiple indications that the EU is planning to retaliate should the UK suspend parts of the NIP (Northern Ireland Protocol),” ING strategists wrote in an investor note.

“Our moderately bullish bias on GBP for the remainder of the year is tied to the view that markets will continue to steer away from embedding much political risk into GBP.”

As of 10:06 GMT on Monday GBP/USD was inching up 0.01% to trade at 1.3413. Last Friday the Forex pair slipped as low as 1.3353, which has been its weakest level since December 23rd 2020 (1.3347). The major currency pair has retreated 1.97% so far in November, following a 1.57% gain in October.

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 -2.31 basis points (-0.0231%) as of 9:15 GMT on Monday, down from -0.2 basis points on November 12th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.3397
R1 – 1.3441
R2 – 1.3470
R3 – 1.3514
R4 – 1.3558

S1 – 1.3368
S2 – 1.3324
S3 – 1.3295
S4 – 1.3266

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