GBP/USD – Sinks as UK Unemployment Rate Edges Higher

The British pound reacted sharply to news that the British Unemployment Rate rose to 7.9%, as GBP/USD dropped more than one cent. Early in the North American session, the pair was trading in the low-1.52 range. In the US, In the US, the long streak of weak releases continued on Tuesday, as Building Permits and Core CPI both failed to meet their estimates. Earlier on Wednesday, Crude Oil Inventories dropped to a four-month low.

There were mixed employment numbers out of the UK on Wednesday, but the markets reacted negatively, as the pound dropped sharply against the US dollar. The Unemployment Rate rose from 7.8% to 7.9%, its highest rate since last October. There was  better news from Claimant Count Change, which pointed to a decline of 7.0 thousand new claims. The estimate stood at 0.0 thousand. Another factor weighing on the pound was the release of the MPC meeting minutes, which indicated that 3 of 9 board members, including BOE Governor King, voted in favor of increasing quantitative easing. The vote was unanimous to maintain interest rates at the level of 0.50%. In the other UK release, Average Earnings Index posted a 0.8% gain, well below the estimate of 1.4%.   

In the US, the picture is not a pretty one, as a long streak of weak economic numbers, dating back to March, continues. Building Permits dropped from 0.95 million to 0.90 million, missing the forecast of 0.94 million. Core CPI posted a weak gain of 0.1%, falling below the estimate of 0.2%. There was better news from US Housing Starts, which hit a multi-year high, improving to 1.04 million. The estimate stood at 0.93 million. The weak data points to trouble in the US economy, and if the streak continues, is bound to raise red flags in the markets about the extent of the US recovery.

The Cyprus bailout crisis, which rattled markets worldwide, may not be in the headlines lately, but the crisis is by no means behind us. Last month, the EU and IMF agreed to provide EUR 10 billion, with Cyprus kicking in another EUR 7 billion. However, the original deal collapsed after Cyprus balked at taxing every bank deposit in the country, following a huge outcry on the island. The bailout has now ballooned to EUR 23 billion, with Cyprus agreeing to pay EUR 13 billion. The country plans to raise these funds through a combination of taxes on uninsured depositors, tax hikes and spending cuts. Cyprus president Nicos Anastasiades said he will ask the EU for more help, but it not clear if Cyprus is asking additional bailout funds or funds in another form. The bailout agreement calls for huge taxes on deposits over EUR 100,000. Deposits in the Bank of Cyprus will lose between 37.5% and 60%, while those in Laiki Bank, which will be winded down, could lose up to 80%. Under the bailout agreement, Cyprus must restructure its banking sector and impose austerity measures. Analysts estimate that the country’s GDP will be slashed by 13% in 2013 and 2014, and steering the economy through choppy waters promises to be a serious challenge to the Cypriot government.

 

GBP/USD for Wednesday, April 17, 2013

Forex Rate Graph 15/1/13

GBP/USD April 17 at 14:20 GMT

1.5228 H: 1.5370 L: 1.5219

 

GBP/USD Technical

S3 S2 S1 R1 R2 R3
1.5053 1.5138 1.5203 1.5309 1.5392 1.5475

 

The pound has dropped sharply in Wednesday trading, and was trading in the low-1.52 range. The pair is receiving support at 1.5203. This is a weak line, and could be tested if the pound continues to fall. There is stronger support at 1.5138. On the upside, there is resistance at 1.5309. This line has strengthened as the pound trades at lower levels. This is followed by a support level at 1.5138.  

  • Current range: 1.5203 to 1.5309

 

Further levels in both directions:

  • Below: 1.5203, 1.5138, 1.5053 and 1.4988
  • Above: 1.5309, 1.5392, 1.5475, 1.5524 and 1.5630

 

OANDA’s Open Positions Ratios

The GBP/USD ratio is not showing any movement in the Wednesday session. This is not reflected in the current movement of the pair, as the pound has fallen sharply against the US dollar. If the pair continues to show volatility, we can expect the ratio to show an increase in movement. 

The markets remain wary about the prospects of the British economy, and higher unemployment contributed to the pound taking a beating. We could see further volatility from the pair as the UK releases Retail Sales on Thursday, while the US releases Unemployment Claims and the Philly Fed Manufacturing Index.

 

GBP/USD Fundamentals

  • 8:30 British Claimant Count Change. Estimate 0.0K. Actual -7.0K
  • 8:30 British MPC Meeting Minutes
  • 8:30 British Unemployment Rate. Estimate 7.8%. Actual 7.9%
  • 8:30 British Average Earnings Index. Estimate 1.4%. Actual 0.8%.
  • 14:30 US Crude Oil Inventories. Estimate 1.2M. Actual -1.2M.
  • 16:00 US FOMC Member Eric Rosengren Speaks
  • 18:00 US Beige Book
  • 20:00 US Treasury Secretary Jack Lew 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.