Forex Market: GBP/USD trades near fresh two-month highs, underpinned by BoE rate hike expectations

GBP/USD traded mostly flat on Monday, while being in proximity to a fresh two-month peak, as market players have bolstered expectations that the Bank of England will lift borrowing costs in February after an unexpected hike in December.

Particular attention will be paid to the preliminary UK GDP figures for November due out on Tuesday.

“We are looking for a decent November UK GDP release tomorrow of 0.4% month over month, which should keep expectations alive of a further Bank of England rate hike on February 3,” ING analysts wrote in an investor note.

The Sterling began 2022 “with a tailwind of cautious optimism; the market will be looking closely at Omicron data, and any immediate indication of Liz Truss’s focus areas, as an indication of the tone taken by the Bank of England in Q1,” Joe Tuckey, a Forex analyst at Argentex, was quoted as saying by Reuters.

Foreign Secretary Liz Truss has been appointed as Britain’s lead negotiator with the European Union over trade to Northern Ireland after Brexit minister David Frost resigned.

According to Truss, the UK is prepared to take unilateral action to suspend customs checks on goods towards Northern Ireland.

As of 10:53 GMT on Monday GBP/USD was inching down 0.01% to trade at 1.3583. Earlier in the trading session the major Forex pair went up as high as 1.3603, which has been its strongest level since November 9th 2021 (1.3607). The currency pair has edged up 0.39% so far in January, following another 1.77% gain in December.

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 4.78 basis points (0.0478%) as of 9:15 GMT on Monday, down from 4.9 basis points on January 7th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.3569
R1 – 1.3613
R2 – 1.3641
R3 – 1.3684
R4 – 1.3728

S1 – 1.3541
S2 – 1.3498
S3 – 1.3470
S4 – 1.3442