Forex Market: GBP/USD extends gains as Sterling disregards political noise, Dollar weakens ahead of FOMC meeting

GBP/USD extended last Friday’s gains on Monday, as the British currency disregarded political noise from allegations against the UK’s Conservative government, while CFTC futures data showed market players were still bullish on the Sterling.

UK PM Boris Johnson has faced a multitude of allegations in the media related to matters such as the way his government initially handled the health crisis as well as questions over who funded his official apartment’s redecoration.

“The political noise surrounding sleaze allegations against the Conservative government have yet to do any real damage to GBP and instead the focus will be on early indications on the pick-up in activity as the economy reopens,” Chris Turner, global head of markets at ING, was quoted as saying by Reuters.

Speculators’ net long position on GBP/USD decreased marginally during the week to April 20th, while the market remains bullish on the Sterling.

Meanwhile, against a basket of six major peers, the US Dollar hit a near 8-week trough on Monday as market players speculated that Federal Reserve Chair Jerome Powell would avoid talking about bond purchase tapering at the bank’s policy meeting later this week.

While the Fed is not expected to introduce any major changes to policy, traders will closely watch Powell’s remarks during the press conference following the FOMC policy meeting.

The Fed Chair is likely to be asked about whether an improvement in US labor market and progress in US coronavirus vaccination campaign are sufficient factors to tighten monetary policy. Yet, many analysts believe that Powell will probably say it is still too early for such a discussion, which would mount pressure on US bond yields and the greenback.

“The dollar is likely to continue to trend lower in line with the gathering momentum in the world economy,” analysts at Commonwealth Bank of Australia wrote in an investor note.

“We expect the Fed policy meeting to be a non-event for the dollar. The U.S. economy is a long way from meeting the ‘substantial further progress’ threshold for the Fed to taper its asset purchases.”

As of 9:15 GMT on Monday GBP/USD was edging up 0.28% to trade at 1.3915, after earlier touching an intraday high at 1.3929, or its strongest level since April 22nd (1.3949). The major currency pair has gained 1.07% so far in April, following a 1.05% drop in March.

In terms of economic calendar, today market players will be paying attention to the March report on US durable goods orders due out at 12:30 GMT.

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 11.7 basis points (0.117%) as of 8:15 GMT on Monday, down from 12.8 basis points on April 23rd.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.3868
R1 – 1.3904
R2 – 1.3931
R3 – 1.3968
R4 – 1.4004

S1 – 1.3840
S2 – 1.3804
S3 – 1.3777
S4 – 1.3749