GBP/USD – Pound Edges Lower, Markets Brace for Soft UK Employment Numbers

GBP/USD has posted slight losses in the Tuesday session. In North American trade, the pair is trading at 1.2840. On the release front, there are no major events on the schedule. On the release front, British BRC Retail Sales Monitor rebounded in June with a strong gain of 1.2%. In the US, JOLTS Jobs Openings dropped sharply to 5.67 million, well below the forecast of 5.98 million. Wednesday will be busy, as the UK releases Average Earnings Index and Claimant Count Change. In the US, Federal Reserve Chair Janet Yellen will testify before the House Financial Services Committee.

A major consequence of Brexit will be the loss of financial jobs, which will relocate from London to the continent. Frankfurt is the expected destination for many companies which will be downsizing their presence in London, but France is eager for a piece of the pie as well. The new French government wants to project a “finance-friendly” image, and on Tuesday, Prime Minister Edouard Philippe told a banking conference in Paris that he wants the city to become Europe’s main financial hub after Brexit. Philippe’s comments underscore that France is looking for a bigger role on the international stage, and Brexit is a unique economic and political opportunity for Philippe and President Emmanuel Macron.

The British economy has managed quite well since the Brexit vote in June 2016, but last week’s PMIs may signal the much-feared economic downturn. PMIs in the manufacturing, construction and services sectors all pointed to slower growth in June, compared to the May readings. The double whammy of the British election and the start of Brexit talks with Europe have increased uncertainty and resulted in a decrease in new orders across the economy. The BoE is divided over whether to raise interest rates in the next few months, and the public disagreements between BoE policy makers over rate policy will not help investor confidence. The May government has a razor-thin majority, and must negotiate a divorce with an angry European Union that does not want to see other members opt to leave the club.  The UK will release key employment numbers on Wednesday, with wage growth and unemployment claims expected to worsen in June. If these numbers are soft, the pound could lose more ground.

Federal Reserve policymakers have broadly hinted at one final rate hike in 2017, and Fed Chair Janet Yellen is sure to be questioned on whether the Fed is still expecting to raise rates in the second half of the year. Still, the markets are not showing much confidence in a rate move, despite a strong Nonfarm Payrolls report last week. A rate increase in September is very unlikely, with the odds pegged at just 13%, according to the CME Group. As for December, the likelihood of a rate hike is 50%, so the markets will need plenty of convincing that the Fed plans to make a move. What factors will raise the odds of a rate increase? First, second quarter growth will have to improve, after a weak performance in the first quarter, in which GDP rose just 1.4%. Second, stronger inflation levels would boost speculation of a rate hike. Currently, inflation is well below the Fed’s target of 2%, and although Janet Yellen recently stated that the factors weighing on inflation were temporary, investors aren’t convinced. Third, the Fed has outlined plans to reduce its bloated balance sheet, but has avoided providing any specifics. If the Fed started to lower the balance sheet in September, such a move would mark a vote of confidence in the economy and raise speculation of a rate hike to follow in December.

GBP/USD Fundamentals

Monday (July 10)

  • 19:01 British BRC Retail Sales Monitor. Actual 1.2%

Tuesday (July 11)

  • 6:00 British MPC Member Ande Haldane Speaks
  • 6:00 US NFIB Small Business Index. Estimate 104.4. Actual 103.6
  • 8:30  British MPC Member Ben Broadbent Speaks
  • 9:30 British CB Leading Index. Estimate -0.1%
  • 10:00 US JOLTS Openings. Estimate 5.98M. Actual 5.67M
  • 10:00 US Final Wholesale Inventories. Estimate 0.3%. Actual 0.4%
  • 12:30 US FOMC Member Lael Brainard Speaks

Upcoming Key Events

Wednesday (July 12)

  • 4:30 British Average Earnings Index. Estimate 1.8%
  • 4:30 British Claimant Count Change. Estimate 10.5K
  • 10:00 US Fed Chair Janet Yellen Testifies

*All release times are EDT

*Key events are in bold

GBP/USD for Tuesday, July 11, 2017

GBP/USD July 11 at 11:40 EDT

Open: 1.2881 High: 1.2928 Low: 1.2832 Close: 1.2840

GBP/USD Technical

S1 S2 S1 R1 R2 R3
1.2401 1.2751 1.2706 1.2865 1.2946 1.3058
  • GBP/USD was flat in the Asian session. In the European session, the pair posted slight gains but then retracted. The pair has posted losses in North American trade
  • 1.2865 was tested earlier in support and is a weak line
  • 1.2946 is the next resistance line

Further levels in both directions:

  • Below: 1.2706, 1.2571 and 1.2401
  • Above: 1.2865, 1.2946, 1.3058 and 1.3121
  • Current range: 1.2706 to 1.2865

OANDA’s Open Positions Ratio

GBP/USD ratio is unchanged in the Tuesday session. Currently, short positions have a majority (61%), indicative of trader bias towards GBP/USD continuing to move lower.

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.