GBP/USD – Under Pressure as UK Economy Worries Markets

The British pound continues to struggle, despite positive data out of the UK this week. The markets remain concerned about the long-term health of the UK economy, and the pound remains under pressure, trading in the mid-1.52 range. This follows some disappointing employment and manufacturing numbers out of the US on Thursday. On Friday, the only US releases on the schedule are speeches by two members of the Federal Reserve. No British releases are scheduled on Friday.

It’s been yet another rough week for the pound, which has lost about 250 points against the US dollar. The British currency has had a miserable February, losing around six cents so far this month. The UK posted some strong data this week, as Unemployment Claims and the Public Sector Trade Balance were well above the forecast, yet these positive numbers did not translate into gains for the currency. The markets seemed to be more focused on the lack of growth by the UK economy, as GDP in Q4 of 2012 contracted by 0.3%, and the Bank of England warned that inflation will remain above target until 2016 at the earliest.

There was an interesting development as minutes of the BOE’s recent meeting indicated that members were split on whether to increase quantitative easing from the current GBP 375 billion to GBP 400 billion. The vote was 6-3 in favor of maintaining the current level, with Governor Mervyn King finding himself in the minority. King’s vote surprised market analysts, as just last week, King had declared that the BOE’s monetary policy had reached its limit as far as boosting the economy’s growth. Clearly, the central bank is looking for ways to kick-start the sluggish UIK economy, and talk of further QE, which is a reasonable possibility in the near future, helped push the pound to lower levels. 

The markets were also sifting through minutes from the most recent meeting of the US Federal Reserve, which were released earlier this week. At the meeting, there was discussion of winding down the current round of QE due to concern about the negative effect that QE could have on the financial markets. Previously, the Fed had stated that it expected to continue with QE until unemployment dropped to 6.5%. The Fed has been purchasing a record amount of assets since December, kept its key interest rate close to zero and expanded its balance sheet to over $3 trillion, but the US economy has not responded as quickly as hoped, and unemployment remains stubbornly high, close to 8%.

 

GBP/USD for Friday, Feb 22, 2013

Forex Rate Graph 22/2/13

GBP/USD Feb 22 at 13:00 GMT

1.5266 H: 1.5320 L: 1.5245

 

GBP/USD Technical

S3 S2 S1 R1 R2 R3
1.5053 1.5138 1.5203 1.5309 1.5395 1.5481

 

The pound has leveled off, as it tries to finds its footing after sustaining substantial losses over the course of the week. The proximate resistance and support lines (R1 and S1 above) remain intact. The pair is receiving support at 1.5203, which was briefly breached earlier this week. This line could face further testing if the pound resumes its losing ways. The next support level is at 1.5138. On the upside, there is resistance at 1.5309. This is followed by a strong resistance line at 1.5395.

  • Current range: 1.5203 to 1.5309.

 

Further levels in both directions:

  • Below: 1.5203, 1.5138, 1.5053, 1.4988 and 1.4880.
  • Above: 1.5309, 1.5395, 1.5481, 1.5565, 1.5685, 1.5792 and 1.5854.

 

OANDA’s Open Positions Ratios

The GBP/USD ratio has gone quiet, after moving towards short positions on Thursday. This lack of activity is reflected in the currency pair, which has also quieted down after sharp losses over the past two days. With a commanding majority in favor of long positions, trader sentiment remains strongly biased in favor of the pound recovering and pushing back against the US dollar.

The British pound continues to get pummelled by the US dollar, as it struggles in the mid-1.52 range. Will the pound’s troubles continue? Momentum clearly favors the US dollar, and some positive UK data this week couldn’t help the ailing pound. Although the pair has leveled off, we could see the dollar continue to post gains due to weak market sentiment with regard to the UK economy.

 

GBP/USD Fundamentals

  • 15:30 US FOMC Jerome Powell Speaks.
  • 23:30 US FOMC Daneil Tarullo Speaks.

 

*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.

Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.