GBP/USD – Pound Surges as BoE Upbeat about Economy, Holds Rates

GBP/USD has posted sharp gains in the Thursday session. In North American trade, the pair is trading at 1.2470. On the release front, the BoE held the benchmark rate at 0.25 percent. British Services PMI improved to 54.5 points, easily beating the forecast of 52.5 points. In the US, unemployment claims jumped to 265 thousand, close to 3-month high. Later in the day, the US releases the ISM Nonfarm Manufacturing PMI. On Friday, the US will release additional employment numbers, led by Nonfarm Employment Change. The indicator is expected to climb to 174 thousand.

The pound is enjoying its best daily session since July, as GDP/USD has jumped close to 200 points on Thursday. The pound responded positively to the BoE’s decision to maintain rates at 0.25 percent. The move amounts to a strong vote of confidence in the UK economy, which has weathered the Brexit vote quite well, as third quarter numbers have generally been solid. The BoE lowered rates in August and had indicated that it would make another cut in November, perhaps down to 0.10% in order to boost the economy. However, strong UK numbers and a steady improvement in inflation levels have allowed the BoE to remain on the sidelines. The Bank has essentially admitted that it was far too pessimistic about the fallout from Brexit, as the MPC has revised its forecast of economic growth. In August, shortly after the Brexit vote, the MPC forecast growth of 2.0 percent in 2016 and 0.8 percent in 2017. The new forecast says the economy will grow 2.2 percent this year and 1.4 percent in 2017. Earlier in the day, the High Court ruled that the government cannot invoke Article 50, the mechanism for leaving the EU, without parliamentary approval. This has raised hopes of a “soft Brexit”, whereby the exit from Europe will be less economically disruptive as the government will have to ensure that the Brexit move receives a majority from members of parliament, many of whom wanted Britain to remain in the EU. The government, which has indicated that it wants to invoke Article 50 by the end of March 2017, intends to appeal the ruling to the Supreme Court.

As expected, the Federal Reserve maintained the benchmark interest rate at 0.25% at Wednesday’s policy meeting. However, the tone of the policy statement was slightly hawkish message with regard to a December hike. The Fed said that the economy has improved and the employment market remains strong. The Fed also noted that inflation was moving towards its target of 2 percent. Weak inflation has long been the Achilles heel of the US economy, but this obstacle to a rate hike appears to have been removed. The policy statement hinted strongly at a December hike, noting that “the case for an increase in the federal funds rate has continued to strengthen but decided, for the time being, to wait for some further evidence of continued progress toward its objectives”.  Two FOMC members voted to raise rates immediately, Fed Presidents Esther George and Loretta Mester. With a December hike currently priced at over 70 percent, market sentiment towards the US dollar should remain positive and we could see gains against other major currencies.

GBP/USD Fundamentals

Thursday (November 3)

  • 5:30 UK Services PMI. Estimate 52.5. Actual 54.5
  • 6:00 EU Membership Court Ruling
  • 7:30 US Challenger Job Cuts. Actual -39.1%
  • 8:00 BoE Inflation Report
    8:00 MPC Official Bank Rate Votes. Estimate 0-0-9. Actual 0-0-9
  • 8:00 BoE Monetary Policy Summary
  • 8:00 BoE Official Bank Rate. Estimate 0.25%. Actual 0.25%
  • 8:00 BoE Asset Purchase Facility. Estimate 435B. Actual 435B
  • 8:00 BoE Asset Purchase Facility Votes. Estimate 0-0-9. Actual 0-0-9
  • 8:30 BoE Governor Mark Carney Speaks
  • 8:30 US Unemployment Claims. Estimate 257K. Actual 265K
  • 8:30 US Preliminary Nonfarm Productivity. Estimate 1.7%. Actual 3.1%
  • 8:30 US Preliminary Unit Labor Costs. Estimate 1.6%. Actual 0.3%
  • 9:45 US Final Services PMI. Estimate 54.8
  • 10:00 US ISM Non-Manufacturing PMI. Estimate 56.2
  • 10:00 US Factory Orders. Estimate 0.2%
  • 10:30 US Natural Gas Storage. Estimate 55B

Friday (November 4)

  • 8:30 US Average Hourly Earnings. Estimate 0.3%
  • 8:30 US Nonfarm Employment Change. Estimate 174K
  • 8:30 US Unemployment Rate. Estimate 4.9%

*All release times are EDT

* Key events are in bold

GBP/USD for Thursday, November 3, 2016

GBP/USD November 3 at 8:45 EDT

Open: 1.2303 High: 1.2494 Low: 1.2298 Close: 1.2471

GBP/USD Technical

S1 S2 S1 R1 R2 R3
1.2120 1.2272 1.2351 1.2479 1.2620 1.2778
  • GBP/USD was flat in the Asian session. The pair has posted sharp gains in the European session
  • 1.2351 has switched to a support role after strong gains by GBP/USD
  • 1.2479 is under strong pressure in resistance and could break during the North American session

Further levels in both directions:

  • Below: 1.2351, 1.2272 and 1.2120
  • Above: 1.2479, 1.2620 and 1.2778
  • Current range: 1.2351 to 1.2479

OANDA’s Open Positions Ratio

GBP/USD ratio is showing slight movement towards long positions. Currently, long positions command a strong majority (64%), 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.