The British pound recovered from broad-based US dollar weakness in the opening session of a shorter holiday week and reached some of its best levels against the euro since December. This is amid broad gains across the government bond complex. In the case of the GBP/USD currency pair, it rebounded towards the 1.2446 resistance level, before settling around the 1.2368 level at the time of writing the analysis.
Overall, the British pound advanced strongly against the US dollar, Swedish krona and the “dollar bloc” group on Tuesday, as financial markets in Europe and North America reopened after a public holiday on Monday. “GBP/USD is trading well after building a nice base near 1.2300,” says Brent Donnelly, President of Spectra Markets and veteran forex trader, who has spent his career among hedge funds and a range of global banks. The other interesting development is that the Treasury appears to have lowered the USDJPY pain threshold.
Gains were more limited in respect of the Japanese yen, the Norwegian krone and the euro, while the sharpest moves followed the reported remarks from Japanese Deputy Finance Minister for International Affairs Masato Kanda. A Reuters report stated, "We will closely monitor the movements of the currency market and respond appropriately as needed." “If necessary, we will not rule out any available options.”
The Japanese yen had previously fallen to some of its weakest levels since October, a period when the Fed's monetary policy stance was at its most hawkish and dangerous for the Japanese currency. There was at least one official intervention to support the currency late last year and several verbal ones, which often led to gains for non-dollar currencies and were sometimes followed by large increases in interbank JPY turnover.
Sterling's rally on Tuesday also came as the UK government bond market stabilized following the deep sell-off seen in the wake of last week's stronger-than-expected inflation figures, however, with price action helping GBP/Euro to rise above an important resistance level on the Graphs. For his part, Chris Turner, market analyst at ING Bank, says, “Money market prices are now 100 basis points for BoE tightening by November. This would put the bank rate at 5.50%. Our team's view is that such a tightening is highly unlikely." “However, the UK data does the most talking and it will likely be the jobs/wages data (June 13) or the CPI data for May (June 21) which will be the main determinant of whether the market takes over the strong tightening expectations.”
Government bond markets rallied as yields fell amid widespread signs of risk aversion in other financial markets on Tuesday when several stock indices traded lower along with crude oil and several other commodities. Gold prices rose along with some industrial metals contracts as many analysts looked forward to the Congressional vote in Washington after reaching an agreement over the weekend to raise the US government's debt ceiling.
Sterling forecast against the dollar today:
- Despite the recent attempts to rebound upwards, the general trend of the GBP/USD currency pair is in a bearish shift.
- The move around and below the support level of 1.2300 confirms the bears' control over the trend.
- According to the performance on the daily chart below, a move towards the support levels 1.2300, 1.2220, and 1.2170 may be important, because it will push the technical indicators towards strong oversold levels.
- It may have an opportunity to think about buying back the currency pair.
On the other hand, the bulls will have control if the GBP/USD pair returns to rebound around the resistance levels at 1.2550 and 1.2630, respectively. The currency pair may remain in its current range until the markets react to the announcement of the US job numbers.
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