GBP/USD – BOE Minutes Positive, But Pound Dips Lower

The British pound has lost ground against the dollar on Wednesday, as GBP/USD has dropped below the 1.62 line. The pound had improved on Tuesday after a weak Non-Farm Payrolls report, but has surrendered much of these gains on Wednesday. The minutes from the BOE’s most recent policy meeting were released, and the policymakers gave the UK economy a thumbs up.

The BOE voted unanimously to maintain policy, as the QE program remained pegged at 375 billion pounds, while the benchmark interest rate was kept at 0.50%. Both decisions were unanimous (9-0). The Bank’s policymakers stated that the UK economic recovery was “robust”, and hence there was no need to increase monetary stimulus or interest rates at the present time. The improving British economy has given a boost to the British pound, which has posted gains of close to 5% in the past six months, outperforming other major currencies.

There was plenty of anticipation leading up to the release of US Non-Farm Payrolls on Tuesday, as the key indicator had been postponed from early October due to the government shutdown. However, the markets were left with a sour taste, as NFP slipped to 148 thousand in September, dropping sharply from 169 thousand in August. This was a six-month low, and well off the estimate of 182 thousand. The US unemployment rate dipped to 7.2%, a five-year low, but this does not point to increased employment, as the participation rate remained at 63.8%, its lowest level since 1978. These figures indicate that the US labor market continues to have difficulty creating new jobs. The US dollar was broadly lower following the weak NFP reading, and the euro gained about one cent against the dollar.

There was some optimism and relief last week, as the Republicans and Democrats finally reached an agreement last week to reopen the government and raise the debt ceiling, following weeks of fighting in Congress. However, the deal provides short-term relief only – the government will be funded until January 15, while the debt limit will be raised until February 7. Both sides have agreed to discuss budget issues and try to reach a long-term agreement before December 13. So we could be right back where we started in just a few months. At the same time, the public is angry at lawmakers for creating the crisis, and with congressional elections only a year away, the politicians on Capitol Hill may think twice before plunging the country into another fiscal and political crisis.

The markets had expected the Federal Reserve to taper QE back in September, but the prolonged shutdown and debt crisis will likely mean that the Fed will shy away from any QE moves until early next year. On Monday, Chicago Fed Reserve President Charles Evans reiterated his support for continued monetary stimulus, saying that the Fed would likely need a few more months of US employment data before reducing QE. Currently, the Fed is purchasing $85 billion worth of bonds each month, and any scaling back will have a strong impact on the US dollar. Evans said that he doesn’t expect the Fed to make a move at the December policy meeting, given that the deal reached in Congress to reopen the government and raise the debt ceiling does so only for a few months.

GBP/USD for Wednesday, October 23, 2013

GBP/USD October 23 at 15:20 GMT

GBP/USD 1.6165 H: 1.6257 L: 1.6120

GBP/USD Technical

• GBP/USD is lower on Wednesday. The pair dropped below the 1.62 line late in the Asian session.
• GBP/USD is facing resistance at 1.6231. This line has some breathing room as the pair has lost ground. This is followed by resistance at the round number of 1.6300.
• On the downside, there is weak support at 1.6125. There is a strong support level at 1.6000.
• Current range: 1.6125 to 1.6231.

Further levels in both directions:

• Below: 1.6125, 1.6000, 1.5877, 1.5756 and 1.5645
• Above: 1.6231, 1.6300, 1.6421 and 1.6512

OANDA’s Open Positions Ratio

GBP/USD continues to point to movement towards long positions in Wednesday trading. This is not consistent with the movement of the pair, as the pound has posted losses against the dollar. Short positions maintain a very significant majority of open positions, reflecting a trader bias towards the US dollar continuing to post gains against the pound.

The dollar continues to put pressure on the pound in Wednesday trading. With no major US releases today, we could see the pair settle down in the North American session.

GBP/USD Fundamentals

• 8:30 Bank of England MPC Asset Purchase Facility Votes. Estimate 0-0-9. Actual 0-0-9.
• 8:30 Bank of England MPC Official Bank Rate Votes. Estimate 0-0-9. Actual 0-0-9.
• 8:30 British BBA Mortagage Approvals. Estimate 39.4K. Actual 43.0K.
• 12:30 US Import Prices. Estimate 0.3%. Actual 0.2%.
• 13:00 US HPI. Estimate 0.8%. Actual 0.3%.
• 14:30 US Crude Oil Inventories. Estimate 2.7M. Actual 5.2M.

*Key releases are highlighted in bold

*All release times are GMT

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