GBP/USD – Pound Stabilizes After Black Friday Plunge

GBP/USD has posted gains on Monday, following huge losses on Friday. In the North American session, GBP/USD is trading at 1.3070. On the release front, it’s a very quiet start to the week, with no British or US events on the schedule. British Rightmove HPI bounced back after two straight losses, posting a respectable gain of 0.7%.

The shock Brexit vote in June sent the pound reeling, and the currency has seen several sharp one-day drops since that time. This was again the case on Friday, when GBP/USD plummeted 250 points, as the pair dropped to the 1.30 level for the first time in a month. The catalyst for the huge drop was US consumer inflation numbers, which were better than expected. CPI posted a gain of 0.2%, edging above the forecast of 0.1%. It was a similar story with Core CPI, which rose 0.3%, compared to the forecast of 0.2%. CPI was up from 0.0% in July, with the rise being attributed to higher shelter and health care costs. If inflation indicators continue to rise, there is a greater chance of a rate hike in December, and increased speculation about a Fed hike could push the greenback to higher levels. The Federal Reserve will hold a policy meeting on September 21, and a rate hike is considered extremely unlikely, with a hike priced in at just 12 percent.

As widely expected, the Bank of England remained on the sidelines on Thursday and held interest rates at a record low 0.25%. This follows a dramatic quarter-cut point in August, the first such move since 2009. The BoE acknowledged that the UK economy had not softened as much as expected after the Brexit vote. However, the bank added that it was prepared to cut rates in November if the bank’s August forecast did not improve by that time. In a Reuters poll released on Thursday, most analysts surveyed said they expected a 0.15% cut in November if UK growth remains modest, which would lower rates to just 0.10%. The BoE made no changes to the asset-purchase scheme, after significantly expanding the program in August. Overshadowed by the BoE rate announcement, retail sales contracted 0.2% in August, better than the forecast of a 0.4% decline. Year over year, retail sales rose by 6.2%, better than the estimate of 5.4%. These figures show that the British consumer hasn’t bought into the gloomy predictions over Brexit, which is good news for the economy and the British pound.

Ever since an upbeat speech from Janet Yellen in August, the markets have been speculating about the timing of the next Fed rate hike. However, recent economic numbers have been mixed, so the Fed is expected to remain on the sidelines on Wednesday, when it sets the benchmark rate. However, the Fed statement will be of intense interest, and the markets will be looking for clues regarding a December move. If Janet Yellen delivers a dovish message, the market’s mood could sour and the dollar could lose ground. Recent comments from FOMC members, which have been almost contradictory at times, have left the markets confused and reinforced the perception that the Fed remains divided regarding its near-future monetary policy. Will the rate picture clear up or remain fuzzy after the rate statement?

GBP/USD Fundamentals

Sunday (September 18)

  • 19:01 British Rightmove HPI. Actual 0.7%

Monday (September 19)

  • 10:00 US NAHB Housing Market Index. Estimate 60 points

Tuesday (September 20)

  • 8:30 US Building Permits. Estimate 1.17M

*All release times are EDT

* Key events are in bold

GBP/USD for Monday, September 19, 2016

GBP/USD September 19 at 11:00 EDT

Open: 1.3012 High: 1.3075 Low: 1.3010 Close: 1.3062

GBP/USD Technical

S1 S2 S1 R1 R2 R3
1.2778 1.2899 1.3033 1.3142 1.3219 1.3327
  • GBP/USD posted small gains in the Asian and European sessions. The pair is showing little movement in North American trade.
  • 1.3142 has switched to resistance following sharp losses by GBP/USD in the Friday session.
  • 1.3033 was tested earlier in support and is a weak line

Further levels in both directions:

  • Below: 1.3033, 1.2899 and 1.2778
  • Above: 1.3142, 1.3219, 1.3327 and 1.3480
  • Current range: 1.3033 to 1.3142

OANDA’s Open Positions Ratio

GBP/USD ratio has showed strong gains towards long positions, following sharp losses by GBP/USD on Friday. Currently, long positions have a strong majority (62%), indicative of trader bias towards GBP/USD continuing to move to higher ground.

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.