GBP/USD – Pound Plummets As Yellen Looks to Get Nod

The pound’s modest rally this week came to a screeching halt on Wednesday. GBP/USD has dropped almost two cents and is trading in the low-1.59 range in Wednesday’s North American session. In economic news, British NIESR GDP posted a solid gain of 0.8%. In the US, today’s highlight is the release of the FOMC Meeting minutes. There are media reports that President Obama will nominate Federal Reserve Vice Chairwoman Janet Yellen to head the Federal Reserve early next year, and the president is expected to confirm this in a statement later today.

The pound took it on the chin in Wednesday trading, dropping close to two cents. The catalyst for the sharp decline was the news that Janet Yellen is expected to be nominated to head the Federal Reserve. Despite the pound’s slide, there was some encouraging data out of the UK as NIESR GDP continues to post strong gains, with a rise of 0.8% in September. The monthly release helps analysts track GDP, which is released on a quarterly basis.

The US dollar has posted broad gains following media reports that President Obama will nominate Susan Yellen to replace Bernard Bernanke as chairman of the Federal Reserve. Bernanke is due to retire early in 2014, and Yellen, who serves as Fed vice-chairwoman, became the leading candidate after Lawrence Summers withdrew his candidacy. Yellen is considered dovish in stance and has supported Bernanke in three rounds of QE increases. Meanwhile, the markets will be paying close attention to the release of the FOMC minutes later today, looking for more clarity about the Fed’s position on QE tapering.

The US shutdown has now entered its second week, and the Republicans and Democrats continue to play the blame game. Neither side is showing any flexibility, at least in front of the cameras. Polls show that most of the public blames the Republicans for the impasse, and this is likely increasing the pressure on the Republicans to agree to pass the budget so that the government can resume operating. The economic damage from the shutdown is not expected to be substantial, but the political fallout of this crisis will likely be significant.

As the shutdown drags on, Congress needs to deal urgently with another brewing crisis – the debt ceiling. The US debt has reached $16.7 trillion, and the country will run out of funds to service the debt by October 17, unless Congress authorizes raising the debt ceiling. Otherwise, the US could potentially default on its obligations, which could cause chaos in the domestic and international markets. There is a lot of bad blood between the Republicans and Democrats over the shutdown, and this will undoubtedly complicate negotiations over the debt ceiling. With just a week to go until the debt ceiling is reached, the markets could get volatile if the politicians in Washington don’t get their act together quickly.

 

GBP/USD October 9 at 14:20 GMT

Forex Rate Graph 21/1/13

GBP/USD 1.5940 H: 1.6120 L: 1.5923

 

GBP/USD Technical

S3

S2

S1

R1

R2

R3

1.5645

1.5756

1.5877

1.6000

1.6125

1.6231

 

  • GBP/USD has recorded sharp losses on Wednesday. The pair crashed below the 1.60 line early in the European session and continues to lose ground.
  • The pair is facing resistance at the round number of 1.6000. This is followed by a strong resistance line at 1.6125.
  • On the downside, the pair is receiving support at 1.5877. This is followed by support at 1.5756.
  • Current range: 1.5877 to 1.600

 

Further levels in both directions:

  • Below: 1.5877, 1.5756, 1.5645 and 1.5527
  • Above: 1.6000, 1.6125, 1.6231, 1.6300, 1.6421, 1.6504 and 1.6573

 

OANDA’s Open Positions Ratio

The GBP/USD ratio has reversed directions, pointing to movement towards long positions in Wednesday trading. This is not reflected in the pair’s current movement, as the pound has dropped sharply. This drop has led to numerous short positions being covered, resulting in a larger percentage of open long positions. The ratio continues to have a dominant majority of short positions, which reflects a bias in favor of the US dollar continuing to rally.

The US dollar has posted huge gains on Wednesday, as GBP/USD is currently below the 1.60 line. We could see further movement from the pair during the day, as the US releases the FOMC Meeting minutes, a key event which could affect the direction of the pair.

 

GBP/USD Fundamentals

  • 14:00 British NIESR GDP Estimate. Actual 0.8%.
  • 14:00 US FOMC Member Charles Evans Speaks.
  • 14:30 US Crude Oil Inventories. Estimate 0.9M. Actual 6.8M.
  • 17:01 US 10-year Bond Auction.
  • 18:00 US FOMC Meeting Minutes.
  • 19:00 President Obama Speaks. Obama is expected to nominate Susan Yellen to head the Federal Reserve.

 

*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.