GBP/USD – Pound Slide Continues After Uninspiring UK Budget

GBP/USD has lost ground on Wednesday, continuing the downward trend which has marked much of the week. Currently GBP/USD is trading at 1.2140. On the release front, Theresa May’s government released the annual budget. In the US, ADP Nonfarm Employment Change soared to 298 thousand, well above the estimate of 184 thousand. On Thursday, the US releases unemployment claims, with the indicator expected to rise to 239 thousand.

Chancellor Philip Hammond delivered the government’s budget on Wednesday, but the response from the British pound was muted. Hammond noted that the UK economy is performing reasonably well, saying that the economy “continued to confound the commentators with robust growth”. He added that the budget would put Britain in a strong position ahead of the Brexit negotiations with Europe. As for economic growth, the Office for Budget Responsibility revised its growth projection from 1.4% to 2.0% to 2017. On a less positive note, Hammond acknowledged that the deficit remained too high and productivity needed to improve. GBP/USD has dropped 3.2% since February 24, as the pound trades at its lowest levels since January 17. As Britain prepares to invoke Article 50 and commence negotiations over its departure from the European Union, there is palpable uncertainty in the markets about the negative ramifications of Brexit. The Service and Manufacturing PMIs in February were weak, which has weighed on the sagging pound.

Sterling Getting Pounded

Donald Trump and his new administration continues to create controversy on an almost basis, much to the consternation of the markets. Still, the dollar hasn’t skipped a beat and remains at high levels against its major rivals, including the pound. The dollar has benefited from a strong economy and the increasing likelihood of a rate hike at the upcoming Fed policy meeting on March 15. The likelihood of a March hike has jumped to 84%, according to the CME group, compared to 33% just a week ago. We’ll get a look at US Nonfarm Payrolls on Friday, which is expected to soften to 185 thousand. If the indicator beats expectations, the greenback rally could continue and increase the odds of a March rate hike.

Are Red Flags Appearing in the USD Rally?

GBP/USD Fundamentals

Wednesday (March 8)

  • 7:30 British Annual Budget Release
  • 8:15 US ADP Nonfarm Employment Change. Estimate 184K. Actual 298K
  • 8:30 US Revised Nonfarm Productivity. Estimate 1.5%. Actual 1.3%
  • 8:30 US Revised Unit Labor Costs. Estimate 1.6%. Actual 1.7%
  • 10:00 US Final Wholesale Inventories. Estimate -0.1%. Actual -0.2%
  • 10:30 US Crude Oil Inventories. Estimate 1.1M. Actual 8.2M
  • 13:01 US 10-y Bond Auction
  • 19:01 British RICS House Price Balance. Estimate 23%

*All release times are GMT

*Key events are in bold

GBP/USD for Wednesday, March 8, 2017

GBP/USD March 8 at 12:15 EST

Open: 1.2202 High: 1.2213 Low: 1.2138 Close: 1.2141

GBP/USD Technical

S1 S2 S1 R1 R2 R3
1.1943 1.2033 1.2143 1.2272 1.2351 1.2471
  • GBP/USD was flat in the Asian session and edged lower in European trade. The pair has inched lower in the North American session
  • 1.2143 was tested in support earlier and is a weak line
  • 1.2272 is the next resistance line

Further levels in both directions:

  • Below: 1.2143, 1.2033 and 1.1943
  • Above: 1.2272, 1.2351, 1.2471 and 1.2579
  • Current range: 1.2143 to 1.2272

OANDA’s Open Positions Ratio

GBP/USD ratio is almost unchanged in the Wednesday session. Currently, long positions have a majority (67%), 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.