GBP/USD – Pound Posts Slight Gains, Markets Await British Inflation Reports

GBP/USD has started the week with slight gains. In Monday’s North American session, the pair is trading slightly above the 1.33 line. On the release front, British CB Leading Index posted a flat reading of 0.00%, after posting two straight declines. On Tuesday, the UK releases a host of inflation indicators, led by the all-important CPI. The markets are expecting a respectable gain of 0.7%.

Ever since the shock Brexit referendum vote in June, there have been dire warnings that the British economy would take a hit, possibly plunging into a recession. The doomsayers appear to be off target, as British data in the third quarter has been stronger than expected. However, there was a soft manufacturing report last week, as Manufacturing Production declined 0.9% in July, missing expectations. This marked a second straight contraction and the weakest reading since February. The next big test comes up on Tuesday, with the release of CPI, the primary gauge of consumer inflation. Inflation has improved in the third quarter, with gains of 0.5% and 0.6% in June and July, respectively. Will the August report match or beat the forecast of 0.7%?

After Janet Yellen provided an upbeat assessment of the US economy at the Jackson Hole summit last month, speculation rose that the Fed might raise rates before the end of 2016. With the Federal Reserve policy meeting just over a week away, US key numbers will be under the market microscope. We’ll have to wait until Thursday and Friday for major releases, highlighted by retail sales, CPI and consumer confidence numbers. If these numbers are stronger than expected, the odds of a rate hike next week will move higher, and the dollar could make headway against its rivals. 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 and will want to see stronger numbers throughout the economy. 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. The likelihood of a rate hike in 2016 has risen since last week, with the CME FedWatch Tool indicating a 24% chance for a September move and a 44% likelihood of a December hike.

GBP/USD Fundamentals

Sunday (September 11)

  • 9:30 British CB Leading Index. Actual 0.0%

Monday (September 12)

  • 13:00 US FOMC Member Lael Brainard Speaks
  • 13:01 US 10-year Bond Auction

Tuesday (September 13)

  • 4:30 British CPI. Estimate 0.7%

*All release times are EDT

* Key events are in bold

GBP/USD for Monday, September 12, 2016

GBP/USD September 12 at 10:10 EDT

Open: 1.3271 High: 1.3316 Low: 1.3232 Close: 1.3309

GBP/USD Technical

S1 S2 S1 R1 R2 R3
1.3033 1.3142 1.3219 1.3327 1.3480 1.3667
  • GBP/USD showed limited movement in the Asian and European sessions. The pair has posted small gains in North American trade
  • 1.3219 is providing strong support
  • 1.3327 is a weak resistance line and could be tested in the North American session

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 almost unchanged on Monday. Currently, short and long positions are close to an even split, indicative of a lack of trader bias as to what direction 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.