GBP/USD – Pound Dips Below 1.31 as Fed Warms Up to Rate Hike

GBP/USD has posted considerable losses on Monday. Early in the North American session, the pair is trading at 1.3060. On the release front, British markets are off for a holiday. In the US, Personal Spending gained 0.3%, while Personal Income rose 0.4%, as both indicators matched the forecast. On Tuesday, the US will release CB Consumer Confidence, a key indicator.

Central bankers gathered in scenic Wyoming last week, and the highlight of the Jackson Hole summit was a speech from Janet Yellen on Friday. The Fed chair was crystal clear in her remarks, saying the case for a rate increase had “strengthened in recent months”. Yellen noted that the economy was close to maximum employment, inflation was steady, and consumer spending remained solid. At the same time, Yellen did not provide any timeline on a rate hike nor did she spell out what the Fed wants to see before pressing the rate trigger. On Friday, Fed members Dennis Lockhart and Stanley Fischer both came out in favor of two rate hikes in 2016. Although the Fed has revived the possibility of a September hike, a December move is considered much more likely, with odds as high as 65% according to Goldman Sachs. However, given that any move by the Fed will be data-dependent, plenty can still happen before the Fed holds its policy meeting on September 21.

Fears that fallout from the Brexit vote would herald the demise of the British economy have so far proven to be unfounded. The positive trend continued on Thursday, as CBI Realized Sales sparkled, with a reading of plus -9, crushing the estimate of minus -5. This indicates that consumer confidence remains strong despite Brexit. July and August releases across the economy have looked sharp, as inflation, employment and retail sales numbers all pointed to expansion. GDP posted a solid gain of 0.6% in the second quarter, and if the markets buy into the notion that the economy has weathered the Brexit storm, the pound could respond with gains.

 

GBP/USD Fundamentals

Monday (August 29)

  • 8:30 US Core PCE Price Index. Estimate 0.1%. Actual 0.1%
  • 8:30 US Personal Spending. Estimate 0.3%. Actual 0.3%
  • 8:30 US Personal Income. Estimate 0.4%. Actual 0.4%

Tuesday (August 30)

  • 10:00 US CB Consumer Confidence. Estimate 97.2

*All release times are EDT

* Key events are in bold

 

GBP/USD for Monday, August 29, 2016

GBP/USD August 29 at 9:10 GMT

Open: 1.3125 High: 1.3132 Low: 1.3058 Close: 1.3066

GBP/USD Technical

S1 S2 S1 R1 R2 R3
1.2849 1.2938 1.3064 1.3142 1.3219 1.3327
  • GBP/USD was flat in the Asian session and posted considerable gains in European session. The pair is unchanged early in North American trade
  • 1.3064 is fluid as a support line and could break during the North American session
  • There is resistance at 1.3142

Further levels in both directions:

  • Below: 1.3064, 1.2938 and 1.2849
  • Above: 1.3142, 1.3219, 1.3327 and 1.3480
  • Current range: 1.3064 to 1.3142

OANDA’s Open Positions Ratio

GBP/USD ratio is almost unchanged on Monday. Long and short positions are almost evenly split, indicating a lack of trader bias as to what direction the GBP/USD will take next.

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.

Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.