Market Analysis – GBPUSD
The Pound is showing a strong decline against the US Dollar during this morning’s Asian Session, currently trading at an exchange rate of 1.4113. The price action of today’s bearish trend currently measures 40 pips, which is a significant amount. However, traders should keep in mind the price has yet to cross to a new price low and is still trading within Friday’s price range. Trader’s will be looking to see if the currency pair can cross the previous support price of 1.4082.
US investors are focused on the publication of May data from the US labor market, which were ambiguous, but showed mixed results and reactions. The Nonfarm Payrolls did not grow as much as the market expected, amounting to 559,000 instead of 650,000. This was a real disappointment for the US Dollar as the NFP figure is known to be the main price driver out of the three figures. At the same time, the main positive fundamentals came from the Unemployment rate, which fell more than expected and reached 5.8%, the lowest since April 2020. The last figure released was the Average Hourly Earnings, which also reported a positive figure of 0.5%. In general, the data disappointed the market and put pressure on the US Dollar.
The slow recovery in the labor market will give the US Federal Reserve officials another argument in favor of maintaining soft monetary policy, although many investors expected the start of tightening by the end of this year. Yesterday the Treasury Secretary spoke about the government’s plans for the next economic stimulus package. Yellen confirmed the package would total about $400 billion each year, but argued the level of spending was not enough to create an inflation overrun. When questioned by Bloomberg about higher levels of inflation, the Secretary advised even if the package led to higher levels of inflation and interest rates, the move would still be positive for the US economy.
On Friday, May UK Construction PMI was positive. The index rose from 61.6 to 64.2 points, exceeding the market’s expected 62.3 points. This is the best indicator in the last seven years. The improvement became possible after the relaxation of quarantine restrictions in the country, which caused a serious increase in the volume of construction in the residential and commercial construction sectors. Housing prices, according to the latest data, have increased by 10%. All this creates optimism and confidence in the future in the UK construction business environment, helping to accelerate the pace of economic recovery.
On another note, investors in the UK are indeed following closely the economic statistics mentioned above, especially any statistics which may contribute to inflation and the country’s monetary policy in the longer run. However, the number of COVID cases are starting to build momentum once more as the figures continue to rise. Britain reported 5,341 new cases of COVID-19 on Sunday, up 68% from a week ago, and 4 more deaths within 28-days of a positive test. Though we must of course note this may not be an issue as the number of hospitalized citizens remains low and as does the fatality rate. It is important to continue to evaluate the situation and keep in mind if figures do continue to rise it may change traders’ view on the currency.
Lastly, it is important to analyse not only the GBPUSD, but also each currency individually. We can see that the US Dollar index is increasing today, but is still trading lower than Friday’s price high. Looking at different major currency pairs, we can see the currency is increasing against the market. The British Pound is weakening significantly against the Euro and also weakening slightly against the Swiss Franc and Japanese Yen.