GBP/USD – Pound Jumps As UK Employment Data Sparkles

The pound has climbed over one cent on Wednesday, as GBP/USD trades just shy of the 1.64 line in the North American session. The pound got a boost from excellent British employment numbers earlier in the day. Employment Change posted a sharp drop and the unemployment rate dropped to its lowest levels in over four years. In the US, the markets are anxiously awaiting the Federal Reserve Monetary Policy Statement, which will be issued later in the day. In other news, Building Permits beat the estimate and Housing Starts jumped to its highest level in almost six years.

British employment numbers looked sharp on Wednesday. Employment Change continues to post sharp drops, a pattern which we’ve seen since mid-2013. The key indicator came in at -36.7 thousand, beating the estimate of -35.2 thousand. The unemployment rate dropped unexpectedly to 7.4%, its lowest level since May 2009. The markets had expected the rate to remain unchanged at 7.6%. Meanwhile, the breakdown of the BOE’s vote on QE and the Official Bank Rate were both unanimous (9-0) decisions. At the last policy meeting, the Bank maintained QE at 375 billion pounds and the Official Bank rate at 0.50%.

There was more good news as CBI Realized Sales jumped to 34 points in November, up sharply from 1 point the month before. This indicates that consumer spending, a critical component of economic growth, is on the rise.  On Tuesday, British CPI, one of the most important economic events, dropped to 2.1%, down from 2.2% a month earlier. This was the index’s lowest level since December 2009. Although the drop was a minor one, the trend has been downward since June. On a more positive note, the reading of 2.1% is closer to the BOE inflation target of 2.0%.

All eyes are on the Federal Reserve, which wraps up a two-day policy meeting on Wednesday. Speculation is swirling that the Fed could announce a tapering of QE. Currently, the Fed is purchasing $85 billion in assets every month, and a Fed taper will likely boost the US dollar against the major currencies. Even if the Fed doesn’t announce a scale down of its asset-purchase program, it could provide a broad hint that tapering is imminent, or provide a sweetener such as a reduction of the interest paid on reserves (IOER). Any of these options would likely result in the dollar gaining ground. However, if the Fed decides not to change current policy, the markets will be disappointed and the dollar could fall. Whatever the Fed chooses to do, we can expect some volatility from the US dollar following the Fed announcement.

Meanwhile, a two-year, bipartisan budget agreement is sailing through Congress. The deal was overwhelmingly approved in the House of Representatives last week and the Senate is  expected to follow suit on Wednesday. The agreement sets limits on government spending for two years and reduces the deficit by a modest $23 billion. Democrats and Republicans both had criticism of the proposal, but there is general agreement in Washington that the compromise reached is a positive step which removes much of the fiscal uncertainty we’ve seen in recent months.

GBP/USD for Wednesday, December 18, 2013

GBP/USD December 18 at 15:15 GMT

GBP/USD 1.6399 H: 1.6401 L: 1.6273

GBP/USD Technical

• GBP/USD has posted sharp gains in Wednesday trading. The pair barreled above the 1.63 line early in the European session and has been moving upwards throughout the day.
• The round number of 1.6300 is back in a support role after the sharp gains by the pound. This is followed by support at 1.6231.
• On the upside, the pair is facing resistance at 1.6476. The next resistance line is at 1.6600, which has not been tested since August 2011.
• Current range: 1.6300 to 1.6476

Further levels in both directions:

• Below: 1.6300, 1.6231, 1.6125, 1.6000 and 1.5893
• Above: 1.6476, 1.66, 1.6705 and 1.6964

OANDA’s Open Positions Ratio

GBP/USD ratio is pointing to gains in long positions in Wednesday trading. This is reflected in the pair’s current movement, as the pound has posted sharp gains against the dollar. Short positions continue to dominate the ratio, reflecting a trader bias towards the US dollar reversing directions and posting gains against the pound.

The pound has gained over one cent against the dollar on Wednesday. Will the upward trend continue? The Federal Reserve will issue a statement later today regarding its QE program, so traders should be prepared for some volatility from the dollar during the North American session.

GBP/USD Fundamentals

• 9:30 British Claimant Count Change. Estimate -35.2K. Actual -36.7K.
• 9:30 British Unemployment Rate. Estimate 7.6%. Actual 7.4%.
• 9:30 Bank of England MPC Asset Purchase Facility Votes. Estimate 0-0-9. Actual 0-0-9.
• 9:30 Bank of England MPC Official Bank Rate Votes. Estimate 0-0-9. Actual 0-0-9.
• 9:30 British Average Earnings Index. Estimate 0.8%. Actual 0.9%
• 9:30 British CBI Realized Sales. Estimate 9 points. Actual 34 points.
• 13:30 US Building Permits. Estimate 0.99M. Actual 1.01M.
• 13:30 US Housing Starts. Estimate 0.95M. Actual 1.09M.
• 13:30 US Housing Starts (Sep. data).Estimate 0.91M. Actual 0.87M.
• 13:30 US Housing Starts (Oct. data).Estimate 0.92M. Actual 0.89M.
• 15:00 US Flash Services PMI. Estimate 56.4 points. Actual 56.0 points.
• 15:30 US Crude Oil Inventories. Estimate -2.4M. Actual -2.9M.
• 19:00 US FOMC Economic Projections.
• 19:00 US FOMC Statement.
• 19:00 US FOMC Federal Funds Rate. Estimate <0.25%.
• 19:30 US FOMC Press Conference.

*Key releases are highlighted in bold

*All release times are GMT

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