GBP/USD – Pound Softens on Weak UK Numbers

The pound has posted strong losses on Thursday, as GBP/USD has given up close to 100 points. In the North American session, the pair is trading in the mid-1.50 range. On the release front, British Public Sector Net Borrowing came in at 12.5 billion pounds, well above expectations. CBI Industrial Order Expectations slipped to 4 points. In the US, Unemployment Claims improved to 301 thousand, but this was short of expectations.

US unemployment claims missed expectations for the second straight week. The key indicator improved to 309 thousand, better than the previous reading of 316 thousand. This fell short of the estimate of 301 thousand. Although the US labor market has improved, this is the fourth straight reading where unemployment claims has missed expectations. On Wednesday, construction readings were a mix. Building Permits came in at 1.03 million, short of the estimate of 1.06M. Housing Starts improved to 1.09 million, beating expectations of 1.04M.

British data was a disappointment on Thursday. Public Sector Net Borrowing saw the deficit narrow to 12.5 billion pounds, but the markets had expected much better numbers, with a forecast of 9.2 billion. On the manufacturing front, Industrial Order Expectations dipped to 4 points, shy of the estimate of 5 points. Retail Sales, one of the most important indicators, will be released on Friday. The markets are bracing for a decline of 0.6% and a weak reading could see the pound lose more ground.

On Wednesday, there was good news on the UK employment front, which has consistently been a bright spot in the British economy. Claimant Count Change dropped by 29.7 thousand, easily beating the forecast of -24.2 thousand. The unemployment rate followed suit and dropped from 5.9% to 5.8%. There was an important shift in the BOE voting pattern on the previous interest rate decision, with a unanimous (9-0) vote to maintain rates at their current level of 0.50%. This marked a change from recent votes, in which two members had voted in favor of raising rates. The unanimous decision reflects the “new order” in which the UK and other industrialized countries must deal with rapidly falling inflation, due in large part to oil prices which have fallen by 50% since the summer. This has eased pressure on the BOE to raise interest rates, a move which would boost the pound.

GBP/USD for Thursday, January 22, 2015

GBP/USD January 22 at 16:30 GMT

GBP/USD 1.5050 H: 1.5212 L: 1.5041

GBP/USD Technical

• GBP/USD was uneventful in the Asian session. The pair posted gains in European trade, testing resistance at 1.5165. The pair has reversed directions and posted sharp losses in the North American session.
• 1.5165 is a strong resistance line. 1.5282 is stronger.
• On the downside, 1.5008 is under pressure as the pair has posted sharp losses. This line has held firm since July 2013.
• Current range: 1.5008 to 1.5165

Further levels in both directions:

• Below: 1.5008, 14873, 1.4781 and 1.4670
• Above: 1.5165, 1.5282, 1.5392, 1.5505 and 1.5644

OANDA’s Open Positions Ratio

GBP/USD ratio is almost unchanged on Thursday, continuing the trend we have seen for most of the week. This is not consistent with the pair’s movement, as the pound has recorded sharp losses. The ratio has a majority of long positions, indicative of trader bias towards the pound reversing direction and moving upwards.

GBP/USD Fundamentals

• 9:00 Bank of England MPC Member David Miles Speaks.
• 9:30 British Public Sector Net Borrowing. Estimate 9.2B. Actual 12.5B.
• 11:00 British CBI Industrial Order Expectations. Estimate 6 points. Actual 4 points.
• 13:30 US Unemployment Claims. Estimate 301K. Actual 309K.
• 14:00 US HPI. Estimate 0.4%. Actual 0.8%.
• 15:30 US Natural Gas Storage. Estimate -231B. Actual -216B.
• 16:00 US Crude Oil Inventories. Estimate 2.5M. Actual 10.1M.

*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.