GBP/USD – Pound Improves on Strong UK Services PMI

GBP/USD has posted gains in the Wednesday session, erasing the losses from Tuesday. In North American trade, GBP/USD is trading at 1.2470. On the release front, British Services PMI improved to 55.0, above the forecast of 53.5 points. In the US, ISM Non-Manufacturing PMI dropped to 55.2, short of the forecast of 57.0 points. Later in the day, the Federal Reserve will release the minutes of its March policy meeting. On Thursday, the US releases the weekly unemployment claims report.

Gertjan Vlieghe, a BoE policymaker, said on Wednesday that consumer spending in the UK was weakening and the situation was likely to worsen. Vlieghe weighed in on the discussion over monetary policy, as he cautioned the BoE against raising interest rates. The BoE, which has adapted a neutral stance towards a rate move, is not expected to raise rates before 2018, and the Brexit process could delay a rate hike even further. Although inflation levels have moved higher, wage growth and consumer spending remain soft, so there isn’t much pressure on the BoE to raise rates in the near future.

All eyes are on the Federal Reserve, which will release the minutes of its March policy meeting. At the meeting, the Fed raised rates by a quarter-point, to a range of 0.75%-1.00%. The markets will be paying close attention to the minutes, looking for hints about the timing of the next hike, as well as the tone of the minutes. Both are factors which could move the currency markets on Wednesday. The markets considered the rate statement overly cautious, and this sentiment sent the US dollar broadly lower in March. If the reaction to the minutes is one of disappointment, the dollar could again experience broad losses.

With the US economy continuing to perform well, the discussions around the monetary policy tables are not whether the Fed will raise rates, but how many hikes we will see in 2017. There is speculation about whether the Fed will hike rates two more times or three more times, and Fed policymakers seemed divided on this question. Last week, FOMC member Eric Rosengren called for three more hikes, saying the Fed should raise rates in June, September and December. Rosengren said that employment and inflation levels were close to the Fed’s targets, and that three additional hikes were needed in order to prevent the US economy from overheating. However, a majority of FOMC members are in favor of just two more hikes this year.

GBP/USD Fundamentals

Wednesday (April 5)

• 4:30 UK Services PMI. Estimate 53.5. Actual 55.0
• 8:15 US ADP Nonfarm Employment Change. Estimate 184K. Actual 263K
• 8:30 External BOE MPC Member Gertjan Vlieghe Speech
• 9:45 US Final Services PMI. Estimate 53.1. Actual 52.8
• 10:00 US ISM Non-Manufacturing PMI. Estimate 57.0. Actual 55.2
• 10:30 US Crude Oil Inventories. Estimate -0.1M. Actual 1.6M
• 14:00 US FOMC Meeting Minutes

Thursday (April 6)

• 8:30 US Unemployment Claims. Actual 251K

*All release times are GMT

*Key events are in bold

GBP/USD for Wednesday, April 5, 2017

GBP/USD April 5 at 11:30 EST

Open: 1.2439 High: 1.2496 Low: 1.2422 Close: 1.2470

GBP/USD Technical

• GBP/USD was flat in the Asian session. The pair posted gains in European trade and is steady in the North American session
• 1.2351 is providing support
• 1.2471 was tested earlier in resistance and is under strong pressure

Further levels in both directions:

• Below: 1.2351, 1.2272 and 1.2154
• Above: 1.2471, 1.2571, 1.2706 and 1.2865
• Current range: 1.2351 to 1.2471

OANDA’s Open Positions Ratio

GBP/USD ratio is showing little movement so far this week. Currently, short and long positions are close to an even split, indicative of a lack of trader bias as to what direction GBP/USD takes 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.