GBP/USD approaches 1.3600 amid hopes of a swift end to Iran war

GBP/USD approaches 1.3600 on Wednesday after bouncing from 1.3513 lows on Tuesday.
Hopes of a quick end to the war in Iran have boosted risk appetite, hurting the safe-haven US Dollar.
UK S&P Global Services PMI and the US ADP Employment Change provide the fundamental backdrop on Wednesday.

Guillermo Alcala FXStreet

The Pound (GBP) accelerates its recovery against the US Dollar (USD) on Wednesday, reaching session highs at 1.3595 so far, after bouncing from weekly lows near 1.3500 on Tuesday. Growing hopes that the war in the Middle East might be nearing its end are weighing on the safe-haven USD and providing support for the Cable.

US President Donald Trump boosted market mood earlier on Wednesday, announcing a pause in the Project Freedom plan to escort vessels out of the Strait of Hormuz, claiming “great progress” in peace negotiations with Tehran.

Previously, the US Secretary of State, Marco Rubio, affirmed in a news conference that the US had achieved all the objectives of the war against Iran and that Operation Epic Fury, the plan to attack Iran, is over, suggesting that the US is not willing to resume the hostilities.

USD tumbles on Iran peace hopes

Investors are focusing on these comments to scale down positions in the safe-haven US Dollar, boosting riskier-perceived currencies like the Pound. The ongoing uncertainty about the Strait of Hormuz, which remains closed without a plan to open it at sight, and the attacks on Gulf countries are being overlooked for now.

In the economic calendar, the final UK S&P Global Purchasing Managers’ Index (PMI) release, due later on Wednesday, is expected to confirm that the sector’s activity accelerated in April, which, if confirmed, will support the Pound’s recovery.

In the US, the focus on Wednesday will be on the ADP Employment Change, which is expected to show that job creation gathered pace in April. This would set an upbeat precedent for Friday’s Nonfarm Payrolls report, which will be analyzed from a monetary policy perspective, after the hawkish shift observed at the Federal Reserve’s latest meeting.

Economic Indicator

S&P Global Services PMI

The Services Purchasing Managers Index (PMI), released on a monthly basis by S&P Global, is a leading indicator gauging business activity in the UK’s services sector. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), employment and inflation. The index varies between 0 and 100, with levels of 50.0 signaling no change over the previous month. A reading above 50 indicates that the services economy is generally expanding, a bullish sign for the Pound Sterling (GBP). Meanwhile, a reading below 50 signals that activity among service providers is generally declining, which is seen as bearish for GBP.

Economic Indicator

ADP Employment Change

The ADP Employment Change is a gauge of employment in the private sector released by the largest payroll processor in the US, Automatic Data Processing Inc. It measures the change in the number of people privately employed in the US. Generally speaking, a rise in the indicator has positive implications for consumer spending and is stimulative of economic growth. So a high reading is traditionally seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

Traders often consider employment figures from ADP, America’s largest payrolls provider, report as the harbinger of the Bureau of Labor Statistics release on Nonfarm Payrolls (usually published two days later), because of the correlation between the two. The overlaying of both series is quite high, but on individual months, the discrepancy can be substantial. Another reason FX traders follow this report is the same as with the NFP – a persistent vigorous growth in employment figures increases inflationary pressures, and with it, the likelihood that the Fed will raise interest rates. Actual figures beating consensus tend to be USD bullish.

Author

Guillermo Alcala

FXStreet

Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.

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