GBP/USD – Pound Steady, Markets Eye Key Fed Minutes

GBP/USD is little changed on Thursday, as the pair trades just above the 1.53 line in European trading. The pound has enjoyed a strong week, buoyed by a strong Manufacturing Production report on Tuesday. GBP/USD has now climbed about 160 points since the start of the week. It’s a busy day on the event front, as the Bank of England set the interest rate and asset purchase (QE) levels, which remain unchanged at 0.50% and 375 billion pounds, respectively. The BOE also announced the voting breakdown of the September votes on interest rate and QE levels. Traders should keep a close eye on two market-moving events in the US on Thursday – Unemployment Claims and the Federal Reserve Policy Meeting Minutes.

Thursday’s key US releases could have a strong impact on the direction of GBP/USD. This week’s unemployment claims report will be carefully monitored, as it follows last week’s dismal Nonfarm Payroll report, which pointed to a gain of only 142 thousand jobs, compared to an estimate of 201 thousand. Unemployment Claims are expected to remain steady, so any major movement would be a surprise and could affect GBP/USD.

There were no surprises from the BOE, as Thursday’s flurry of announcements were all as expected by the markets. The most important release was the decision to maintain the benchmark interest rate at 0.50%, where it has been pegged since 2009, and maintain QE levels at 375 billion pounds. The voting breakdown of the September decisions on interest rate and QE levels were also as expected. Eight MPC members voted to hold rates at 0.50%, with one member, Ian McCafferty, voting in favor of a rate increase. The vote on QE was unanimous, with all 9 MPC members voting to hold levels at 375 billion pounds per year. The UK economy has been performing well and wage growth has risen, but a rate hike in the near future remains unlikely, given the persistently weak inflation levels.

Anticipation is high as the Federal Reserve is set to release the minutes of its most recent policy meeting later on Thursday. For months, expectations had been running high that the Federal Reserve might press the rate trigger and bump up rates at the September meeting. However, the Fed stayed on the sidelines and maintained rates, and the US dollar faced broad pressure from its rivals as a result. At the same time, the policy statement had a hawkish tone, giving the markets hope that the Fed could still make a move prior to the end of the year. A dismal US Nonfarm Payrolls report late last week poured cold water on these hopes, but market sentiment can change fairly quickly, and if the US rebounds with some strong data, such as unemployment claims, we could see more optimism about a rate hike. If the Fed minutes give a vote of confidence to the US economy or provide any clues about a rate hike, the dollar could respond with gains.

GBP/USD Fundamentals

Thursday (Oct. 8)

• 11:00 MPC Official Bank Rate Votes. Estimate 1-0-8. Actual 1-0-8.
• 11:00 BOE Monetary Policy Summary
• 11:00 BOE Official Bank Rate. Estimate 0.50%. Actual 0.50%. 
• 11:00 BOE Asset Purchase Facility. Estimate GBP 375 billion. Actual GBP 375 billion.

Upcoming Key Events

Thursday (Oct. 8)

• 12:30 US Unemployment Claims

This is one of the most important economic indicators, and traders should treat it as a market-mover. Unemployment Claims rose slightly last week to 277 thousand, but this was within expectations. Given the dismal Nonfarm Payrolls report last week, a weaker reading than expected could send the US dollar lower.

• 18:00 Federal Reserve FOMC Meeting Minutes

The markets will be watching this event closely, given the continuing speculation about a rate hike by the Federal Reserve. Any hints about a rate hike could boost the US dollar against the pound.

• 18:00 BOE Governor Mark Carney Speaks

Carney will speak at the IMF meeting in Lima, Peru. The markets will be listening closely for any clues about possible changes in the BOE’s monetary policy.

Friday (Oct. 9)

• 8:30 British Trade Balance. Estimate GBP -10.0 billion.

Trade Balance is closely linked to currency demand, so an unexpected reading could affect GBP/USD. The markets are expecting an improvement from the July reading of GBP -11.1 billion, which was much higher than the forecast of GBP -9.5 billion. If the trade deficit matches or beats the estimate, we could see the pound move upwards.

*Key releases are highlighted in bold

*All release times are GMT

GBP/USD for Thursday, October 8, 2015

GBP/USD October 8 at 11:40 GMT

GBP/USD 1.5314 H: 1.5372 L: 1.5296

GBP/USD Technical

• GBP/USD was steady in the Asian session. The pair posted gains earlier in European trading but has since retracted.
• 1.5269 is providing support. 1.5163 is next.
• 1.5341 has been tested but remains an immediate resistance line.
• Current range: 1.5269 to 1.5341

Further levels in both directions:

• Below: 1.5269, 1.5163, 1.5026 and 1.4922
• Above: 1.5341, 1.5485, 1.5590 and 1.5660

OANDA’s Open Positions Ratio

GBP/USD ratio remains unchanged on Thursday, with a majority of long positions (57%). This is indicative of trader bias towards the pound moving higher.

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.