GBP/USD struggles to hold above 1.31 as USD recovers on rising bond yields

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  • Latest Brexit headlines provide a boost to the GBP.
  • US Dollar Index recovers NFP-led losses.
  • US 10-year T-bond yield hits fresh seven-year high at 3.24%.

The GBP/USD pair took advantage of the broad-based USD weakness during the first half of the NA session and extended its daily upside. With the latest Brexit headlines providing some additional boost to the pound sterling, the pair reached its highest level of the day at 1.3122. However, as greenback started to gather strength on the back of rallying T-bond yields, the pair erased a portion of its daily gains and was last seen trading at 1.3095, where it was up 0.57%.

According to Bloomberg, the EU is getting ready to offer a ‘super-charged’ free-trade deal to the UK in order to reach a Brexit deal. “The EU’s vision for future ties with Britain will contain “about 30-40 percent” of May’s pitch for a wide-ranging trade and security deal, according to two of the diplomats. Chief negotiator Michel Barnier’s team gave European ambassadors an outline of his proposal on Friday, and will formally present it to them — at least in part — on Wednesday,” Bloomberg reported.

Earlier in the session, the U.S. Bureau of Labor Statistics reported that the nonfarm payroll employment increased by 134K in September to fall short of the market expectation of 185K to trigger a USD sell-off. After slumping to a daily low at 95.52, the US Dollar Index reversed its course with the help of rising US government bond yields. As the 10-year reference reached a new 7-year high at 3.24% in the last hour, the DXY turned flat on the day at 95.75.

Commenting on today’s employment reports, “The US jobs market is red hot, notwithstanding Hurricane Florence effects. Strong growth, record low unemployment and rising wage pressures mean we look for four more Federal Reserve rate hikes over the next twelve months,” ING analysts said.

Technical levels to consider

With a decisive break above 1.3090/1.3100 (20-DMA/psychological level) the pair could target 1.3165 (Sep. 24 high) and 1.3215 (Sep. 26 high). On the downside, supports align at 1.3060 (100-DMA), 1.3000 (psychological level) and 1.2955 (50-DMA).  

 

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