GBP/USD – Pound Slips as Fed Rate Hike More Likely

GBP/USD has posted sharp losses on Monday. In the North American session, the pair is trading slightly below the 1.2460. On the release front, it’s a quiet start to the week, with no British or US releases. Tuesday will be busy, with the UK releasing CPI and BoE Governor Mark Carney will speak about inflation before a parliamentary committee. The US will release key retail sales numbers.

The pound bucked the trend last week, as it was the only major currency not to sustain losses against the red-hot US dollar. The pound has benefited from solid British data in the third quarter and the BoE’s decision to maintain interest rates at 0.25 percent. Back in September, the BoE had broadly hinted that there would be further rate cuts, but the economy has performed well and inflation has moved higher. This has allowed the bank to refrain from further cuts and even raise growth forecasts for the economy. Inflation will be in the spotlight on Tuesday, as the UK releases a host of inflation data, led by CPI. The indicator is expected to improve to 1.1 percent. The markets will also be closely monitoring as Mark Carney presents the bank’s inflation report to lawmakers.

As the shock of a Trump presidency begins to wear off, investors and traders are asking what will a Trump election mean for the markets. Like much of his agenda, Trump’s economic platform is unclear. According to Bank of America Merrill Lynch, given that the Republican control both houses of Congress, we could see Trump opt to loosen fiscal policy. This would lead to greater spending, causing more inflation. In turn, interest rates would move higher and bolster the US dollar. However, Trump remains an enigma, having never held public office. His ideology is unclear (if he has one), so the markets could be in for a period of uncertainty, at least in the early stages of the Trump administration. This could lead to prolonged volatility in the currency markets. As far as monetary policy is concerned, the odds of a rate hike in December also showed some volatility immediately after the election, but have jumped to a remarkable 85 percent, as all signs point to the first hike since last December.

GBP/USD Fundamentals

Sunday (November 13)

  • 19:01 British Rightmove HPI. Actual -1.1%

Monday (November 14)

  • There are no British or US events on the schedule

Tuesday (November 15)

  • 4:30 British CPI. Estimate 1.1%
  • 8:30 US Core Retail Sales. Estimate 0.5%
  • 8:30 US Retail Sales. Estimate 0.6%
  • 10:00 British Inflation Report Hearings

*All release times are EDT

* Key events are in bold

GBP/USD for Monday, November 14, 2016

GBP/USD November 14 at 11:20 EDT

Open: 1.2574 High: 1.2579 Low: 1.2443 Close: 1.2463

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 was choppy in European session and has posted considerable losses in North American trade
  • 1.2351 is providing support
  • 1.2479 remains a weak line in resistance

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 short positions. Currently, long positions command a majority (59%), indicative of trader bias towards GBP/USD reversing directions and moving upwards.

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.