Market Analysis – GBPUSD
The British Pound against the US Dollar is showing a strong price volatility range of above 110 pips over the past two weeks. However, the asset has lacked direction and momentum due to the current “tug of war” scenario whereby each gain is followed by a price correction. Today we can see the asset is increasing in value as it did yesterday; overall the week has seen so far an insignificant increase of 0.20%. The exchange rate, generally speaking even with the two-day bullish candlesticks, remains low and in the lower end of technical oscillators such as the Relative Strength Index. Traders are looking to see if the asset can build momentum, or if we will see another collapse.
Senior ministers have signed off on the decision to delay the lifting of all legal restrictions on social contact. The decision was met with fury in most city centres as demonstrators let their opinions known. Over 50% of the population has been vaccinated with the second dose in the UK, hence why citizens have questioned the delayed relaxation of restrictions. That could mean capacity limits for sports, pubs, and cinemas will remain, and nightclubs would stay closed. England was due to move to stage four of the government’s roadmap out of lockdown on the 21st of June, when venues and events would be allowed to operate without capacity limits and the cap on guests at weddings would be lifted.
The market continues to evaluate the situation regarding the US’s hyperinflation, which continues to grow. Billionaire hedge fund manager, Paul Tudor Jones, who often comments and analyses the economy, told CNBC last night during an interview that the Federal Reserve is risking its credibility by keeping policy so loose and allowing inflation to grow in a way that may not be temporary. Nearly the whole market has predicted that the Federal Reserve will not change its stance on neither the $120 Billion bond-buying program, intended to create liquidity during the pandemic, nor interest rates which are near the zero mark. However, the market will be closely monitoring what the monetary policy and chairman have to say regarding the future monetary policy and inflation.
So far, the Regulator has held back any hawkish comments or views as they advise stimulus needs to be maintained until the employment sector fully recovers and the economy sees stable growth in the longer term. However, job openings in April soared to a record 9.3 million as the economy rapidly recovered from its pandemic depths. The standard set in April was well above the 8.3 million in March which itself was a new high going back to 2000 for the Labor Department’s Job Openings and Labor Turnover Survey. In addition to this, the unemployment rate also continues to steadily fall. This has left traders questioning if the policy may change within the coming months, or after the summer. Any change in policy is known to have strong effects on the US Dollar.
Looking at the US Dollar Index today, we can see minimum volatility and movement as the market holds back to see how the Federal Reserve is likely to react to the recent high levels of inflation. Looking at the daily timeframe, we can see a bearish candlestick has formed and there has been a slight decline, but traders should keep in mind this is only a small movement so far, and the index is likely to see higher levels of volatility and movement after the events this afternoon. This morning the Pound is seeing a slight decline against the market. The decline can be seen against the Euro, Canadian Dollar and Swiss Franc, but is slightly increasing against the Yen.
Today the market has scheduled three major reports related to the US. These include figures for Retail Sales, Core Retail Sales and the US’s Purchase Price Index, all can again be linked to inflation. In addition, tomorrow we will also see the Federal Reserve speaking about economic projections and inflation. After the speech there will also be a press conference held where the chairman will be questioned about different elements of the economy. In addition, the Governor of the Bank of England is also due to speak this afternoon which, again, may prove to be significant for the exchange rate.