GBP/USD – Markets Watching BOE for Interest Rate, QE Announcements

GBP/USD was subdued in Wednesday’s European session, displaying little change. The pound was trading quietly in the mid-1.56 range, as the markets keep a close eye on the Bank of England, which will announce its new QE and interest rate levels on Thursday. In the US, ISM Non-Manufacturing was down, but matched the market forecast. Today’s sole release is US Oil Inventories. Back in the UK, Wednesday’s data was weak, with both the BRC Shop Price Index and Halifax HPI slumping badly. The pound is not showing much movement against the US dollar, shrugging off weak UK data earlier today. The BRC Shop Price Index gained 0.6%, its smallest rise since December 2009. The Halifax House Price Index declined 0.2%. Although this matched the forecast, it was the first decline for the housing index after two robust readings.

The markets have bigger worries than today’s disappointing data, as there is a serious concern that the UK could lose its AAA credit rating if it does not take further steps to reduce its debt. The Fitch credit rating agency has put the UK’s AAA rating on “negative” outlook for almost a year, which is a warning that it could downgrade the rating.  Fitch is concerned that the UK government has stated that it will miss its target of starting to cut the debt in 2015. The government blamed a weak economy and less demand for UK exports from the Eurozone, the UK’s biggest market. The country’s debt hit 68% of GDP in 2012, and if this continues to rise, the UK could be slapped with a downgrade, which would be bad news for the economy and the British pound.

The euro remains under pressure, as the market keeps a close eye on Thursday’s ECB policy meeting. Most analysts expect the key interest rate level to be maintained at 0.75%, so no surprises are likely. However, the markets will be closely attuned to remarks by ECB head Mario Draghi, following the interest rate announcement. At the previous policy meeting, Draghi’s optimism about the Eurozone helped fuel the euro’s sharp rise. In the UK, the BOE will also be in the spotlight, as the Bank announces it QE and interest rate levels. No changes are anticipated, as the markets expect QE to remain pegged at 375 billion pounds and interest rates to stay at 0.50%.

Back in the US, recent economic indicators continue to keep the markets guessing about the extent of the US recovery. Recent key releases continue to paint a mixed picture. GDP was a major disappointment, as the economy contracted for the first time since 2009. Employment numbers lost their recent shine, as NFP and Unemployment Claims failed to meet expectations, and the unemployment rate inched up to 7.9%. On the bright side, last week’s consumer sentiment and manufacturing PMI data was very strong. In Wednesday’s releases, ISM Non-Manufacturing PMI, a key indicator, declined slightly, but still matched the estimate. With only a handful of key US releases this week, each one will find itself under the market microscope as the markets try to get a handle on where the US economy is headed.

GBP/USD for Wednesday, February 6, 2013

GBP/USD February 6 at 15:35 GMT

1.5649 H: 1.5678 L: 1.5632

GBP/USD Technical

GBP/USD continues to point downward, and is trading in the 1.5650 range. The pair is receiving support at 1.5625. This is a weak line, which could be tested if the pound continues its slide. There is stronger support at 1.5568. On the upside, there is resistance at 1.5685. This is followed by stronger resistance at 1.5728. This line continues to strengthen as the GBP/USD trades at lower levels.

Current range: 1.5625 to 1.5685.

Further levels in both directions:

• Below: 1.5625, 1.5568, 1.5481 and 1.5395.
• Above: 1.5685, 1.5728, 1.5785, 1.5850, 1.5919, 1.5975 and 1.6062.

OANDA Open Positions Ratios

The GBP/USD ratio continues to point to movement towards short positions. This is reflected in the pair’s current downward movement, as pound loses further ground. With the continuing volatility in GBP/USD, we can expect further activity in the ratio as well.

GBP/USD has managed to slow its descent, but the pair continues to lose ground. The pound has now shed over a cent in since Wednesday. Will the downward momentum continue? The markets continue to fret over the health of the British economy, and this negative sentiment is taking its toll on the pound, which continues to struggle against the US dollar.

GBP/USD Fundamentals

• 00:00 British BRC Shop Price Index. Estimate 0.6%.
• 8:00 British Halifax HPI. Estimate -0.2%. Acutal -0.2%.
• 15:30 US Crude Oil Inventories. Estimate 2.7M.

*Key releases are highlighted in bold

*All release times are GMT

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.