GBP/USD: Pound Shrugs Off Strong UK Job Numbers

GBP/USD is stable on Wednesday, as the pair trades in the low-1.71 range in the North American session. On the release front, UK employment numbers were excellent, as Claimant Count Change posted its sharpest decline this year, while the unemployment rate dropped to 6.5%, its best performance in over 5 years. However, the Average Earnings Index softened last month and missed the estimate. In the US, Fed chair Janet Yellen continues her testimony on Capitol Hill, as she addresses the House Finance Committee. There was good news on the inflation front, as PPI improved to 0.4% in June, beating the estimate.

British employment numbers were excellent last month, but the impressive data was greeted with a yawn by the high-flying pound. Claimant Count Change came in at -36.3 thousand, easily beating the estimate of -27.1 thousand. The unemployment rate dipped to the key level of 6.5%, which had been touted earlier in the year as a threshold level for a rate hike by the BOE. This matched the estimate.

On Tuesday, British CPI caught the markets by surprise, as the key index jumped to 1.9%, its highest level since January. The rise in inflation has increased speculation about a rate hike by the BOE. However, BOE Governor Mark Carney, testifying before the House of Commons Treasury Committee, said that the central bank would not provide forward guidance as to when the Bank would raise interest rates. Carney added that a decision to raise rates will be driven by market data. So, it appears that market speculation as to when the BOE might make a rate move will only increase as the BOE is intent on keeping the markets in the dark until such time that a rate hike is announced.

Recent US inflation numbers have been weak, so the markets were pleasantly surprised with the June release of the Producer Price index, the primary gauge of inflation in the manufacturing sector. The index improved to 0.4%, beating the estimate of .02%. With Janet Yellen saying that a rate hike could be pushed forward if inflation and employment data exceeds expectations, stronger inflation numbers such as the June PPI will put more pressure on the Fed to raise rates.

The dollar responded positively to Fed chair Yellen’s testimony before a Senate committee on Tuesday. Yellen stated that given current economic conditions, monetary stimulus was still required, but rates could increase sooner than expected if inflation and job numbers improved more quickly than forecast. The markets were quick to give a thumbs-up to the prospect of earlier rate increases, and EUR/USD continues to lose ground. The Fed’s asset purchase program (QE) has flooded the economy with over $2 trillion, keeping interest rates at ultra-low levels, but the Fed has been steadily reducing the program since last December. Currently, the Fed is pumping $45 billion/month into the economy, and the next taper is expected in August, with plans to terminate QE in October.

GBP/USD for Wednesday, July 16, 2014

GBP/USD July 16 at 16:00 GMT

GBP/USD 1.7128 H: 1.7151 L: 1.7116

GBP/USD Technical

• GBP/USD was quiet in the Asian session and showed some stronger movement in the European session. The pair has edged lower in North American trade.
• 1.7000 has strengthened in support as the pair trades at higher levels.
• On the upside, 1.7183 has some breathing room. This is followed by 1.7228, which has held firm since October 2008.
• Current range: 1.7000 to 1.7183.

Further levels in both directions:

• Below: 1.7000, 1.6920, 1.6825 and 1.6700
• Above: 1.7183, 1.7228, 1.7383 and 1.7482

OANDA’s Open Positions Ratio

GBP/USD is pointing to gains in long positions in Wednesday trade, reversing the direction seen a day earlier. This is not consistent with the movement of the pair, as the pound has posted small losses. A substantial majority of open positions in the GBP/USD ratio are short, indicative of a trader bias towards the dollar moving to higher levels.

GBP/USD Fundamentals

• 8:30 British Average Earnings Index. Estimate 0.5%. Actual 0.3%.
• 8:30 British Claimant Count Change. Estimate -27.1K. Actual -36.3K.
• 8:30 British Unemployment Rate. Estimate 6.5%. Actual 6.5%.
• 12:30 US PPI. Estimate 0.2%. Actual 0.4%.
• 12:30 US Core PPI. Estimate 0.2%. Actual 0.2%.
• 13:00 US TIC Long Term Purchases. Estimate 27.4B. Actual 19.4B.
• 13:15 US Capacity Utilization Rate. Estimate 79.4%. Actual 79.1%.
• 13:15 US Industrial Production. Estimate 0.4%. Actual 0.2%.
• 14:00 US Federal Reserve Chair Janet Yellen Testifies Before House Financial Services Committee.
• 14:00 US NAHB Housing Market Index. Estimate 51 points. Actual 53 points.
• 14:30 US Crude Oil Inventories. Estimate -2.1M. Actual -7.5M.
• 16:00 US FOMC Member Richard Fisher Speaks.
• 18:00 US Beige Book.

* 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.