GBP/USD – Pound Unchanged as Trade Deficit Meets Expectations

GBP/USD is showing limited movement on Friday, as the pair trades slightly above the 1.33 line. On the release front, the UK’s trade deficit came in at GBP 11.8 billion, just above the estimate of GBP 11.7 billion. Construction Output came in at a flat 0.0%, beating the estimate of -1.0%. As well, Consumer Inflation Expectations gained 2.2%, compared to the 2.0% gain a month earlier. In the US, the sole release on the schedule is Wholesale Inventories, which is expected to post a small gain of 0.1%. With a Fed rate hike again on the agenda, the markets will be listening closely to FOMC member Eric Rosengren, who will speak at an event in Boston.

British data in the third quarter has been stronger than expected, although there was a disappointment on Thursday, as Manufacturing Production, a key indicator, declined 0.9% in July, well short of the estimate of a 0.4% decline. This marked a second straight contraction and the weakest reading since February. This disappointing release was tempered by Industrial Production, which remained unchanged at 0.1%, above the forecast. Meanwhile, Bank of England Governor Mark Carney testified before a parliamentary committee on Wednesday and had to defend the BoE’s drastic moves in early August, following the shock Brexit vote. At the time, the bank cut rates to an all-time low of 0.25% and expanded the asset-purchase program to GBP 435 billion. Carney was a strong supporter of the losing “Remain” camp and has been criticized by some MPs for acting too aggressively in the wake of the Brexit vote. Carney stated that he had no regrets about the bank’s moves, although he did acknowledge that damage to the economy was less than forecast by the bank when it cut rates and expanded the asset-purchase scheme. Although recent data has generally been positive, concerns remain that the dramatic move to depart the EU could send the economy into a tailspin.

It was just a few weeks ago that Fed chair Janet Yellen said that the case in favor of a rate hike had improved, given stronger US data. Ever since that speech in Jackson Hole, the markets have been fixated on the possibility of a rate hike prior to the end of 2016. However, a spate of weak US numbers in the past week has lowered the likelihood of a move by the Fed. The CME FedWatch Tool is showing slim odds for a September move (18%), while a move in December is more likely (40%). Although the US labor market remains close to capacity, many FOMC members will be reluctant to approve a rate hike based solely on strong employment numbers. Consumer spending remains a concern, but the main sticking point is weak inflation levels, which will likely weaken even further if the Fed raises rates. Barring any spectacular data in the next few weeks, it appears a safe bet that the Fed will hug the sidelines in September and revisit the rate issue in December.

GBP/USD Fundamentals

Friday (September 9)

• 4:30 British Goods Trade Balance. Estimate -11.7B. Actual -11.8B
• 4:30 British Construction Output. Estimate 0.0%. Actual -1.0%
• 4:30 British Consumer Inflation Expectations. Actual 2.2%
• 7:45 US FOMC Eric Rosengren Speaks
• 10:00 US Wholesale Inventories. Estimate 0.1%

*All release times are EDT

* Key events are in bold

GBP/USD for Friday, September 9, 2016

GBP/USD September 9 at 8:05 EDT

Open: 1.3307 High: 1.3336 Low: 1.3282 Close: 1.3313

GBP/USD Technical

• GBP/USD posted slight gains in the Asian session but has retracted in European trade
• 1.3327 was tested earlier in resistance and is a weak line. It could break in the North American session
• 1.3219 is providing strong support

Further levels in both directions:

• Below: 1.3219, 1.3142 and 1.3033
• Above: 1.3327, 1.3480, 1.3667 and 1.3835
• Current range: 1.3219 to 1.3327

OANDA’s Open Positions Ratio

GBP/USD ratio is unchanged on Friday. Currently, short positions have a small majority (53%), indicative of slight trader bias towards GBP/USD breaking out and moving lower.

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.