The pound has steadied on Wednesday, following sharp losses a day earlier. GBP/USD is trading in the mid-1.66 range in the North American session. On the release front, British Industrial Order Expectations improved sharply in July. As well, the BOE minutes indicated a split regarding the interest rate decision in early August. In the US, today’s highlight is the Federal Reserve policy meeting minutes, which should be treated by traders as a market-mover.
All eyes are on the Federal Reserve, which will release the minutes of its last policy meeting later on Wednesday. Traders are looking for clues as to when the Fed will press the trigger and raise interest rates, but may end up disappointed. Growth numbers have been positive, but job data could be better and inflation remains very low, so the Fed seems in no rush to tinker with interest rates. The Fed’s asset purchase program (QE) is scheduled to wind up in October, and then the guessing game regarding a rate hike will heat up.
The markets raised an eyebrow as the BOE minutes indicated that the decision to maintain interest rates at 0.50% was split, with BOE board members Martin Weale and Ian McCafferty coming out in favor of an immediate rise in the bank rate. This marks the first split vote on interest rates in over three years, and is the first under the stewardship of Governor Mark Carney. The surprisingly strong dissent within policymaker ranks could reignite speculation about a raise in rates and bolster the pound, which has looked awful against the dollar recently. As expected, the BOE decision to hold asset purchases at their present level of 375 billion pounds was unanimous (9-0). Meanwhile, there was some good news from the UK manufacturing front, as CBI Industrial Order Expectations jumped to 11 points last month, up sharply from 2 points in the previous release.
British inflation levels continue to drop, and the pound paid the price on Tuesday. CPI, the primary gauge of consumer inflation, slipped to 1.6%, down from 1.9% a month earlier. This was shy of the estimate of 1.8%, and is well below the BOE inflation target of 2.0%. Other inflation indicators missed their estimates, with PPI Input looking particularly weak, posting a sharp decline of 2.5% in July.
In the US, inflation levels remain in dire straits. On Tuesday, CPI and Core CPI, the primary gauges of consumer inflation, both posted paltry gains of 0.1%. These weak readings come on the heels of PPI, a manufacturing inflation index, which also came in at 0.1% last month. Weak inflation is one reason why the Federal Reserve is in no rush to raise interest rates, as low inflation points to slack in the economy. On a bright note, US housing numbers were sharp on Tuesday. Building Permits improved to 1.05 million, beating the estimate of 1.00 million. Housing Starts jumped to 1.09 million, easily beating the estimate of 0.97 million.
Financial leaders and central bankers from around the world will gather in Jackson Hole, Wyoming for a conference which starts on Friday. This will be Janet Yellen’s first appearance as Fed chair at the conference, and will undoubtedly be the star of the show. Yellen is expected to discuss the employment market rather than monetary policy, but the markets will be listening closely for any hints as to an interest rate hike.
GBP/USD for Wednesday, August 20, 2014
GBP/USD August 20 at 15:50 GMT
GBP/USD 1.6637 H: 1.6679 L: 1.6602
- GBP/USD was uneventful in the Asian session. The pair showed some strength in the European session, rising to a high of 1.6679 and putting pressure on resistance at 1.67. However, the pair was unable to hold onto these gains and retracted. GBP/USD is steady in North American trade.
- 1.6700 is the next resistance line. 1.6825 follows.
- 1.6565 is providing strong support.
- Current range: 1.6565 to 1.6700.
Further levels in both directions:
- Below: 1.6565, 1.6484 and 1.6382
- Above: 1.6700, 1.6825, 1.6920 and 1.7000
OANDA’s Open Positions Ratio
GBP/USD is pointing to gains in long positions in Wednesday trade. This is consistent with the movement we are seeing from the pair, as the pound has posted small gains. The ratio has a large majority of long positions, indicative of trader bias towards the pound moving higher.
- 8:30 BOE Asset Purchase Facility Votes. Estimate 0-0-9. Actual 0-0-9.
- 8:30 BOE Official Bank Rate Votes. Estimate 0-0-9. Actual 2-0-7.
- 10:00 CBI Industrial Order Expectations.
- 14:30 US Crude Oil Inventories. Estimate -1.3M. Actual -4.5M.
- 18:00 US FOMC Meeting Minutes.
* Key releases are highlighted in bold
*All release times are GMT