GBP/USD – Pound Punches Above 1.29, Markets Eye US Inflation and Retail Sales

GBP/USD has posted slight gains in the Thursday session. In North American trade, the pair is trading at 1.2930. On the release front, the BoE released its quarterly Credit Conditions Survey. In the US, PPI posted a weak gain of 0.1%, above the forecast of 0.0%. Unemployment claims ticked lower to 247 thousand, above the estimate of 245 thousand. On Friday, the US releases CPI and retail sales numbers, so we could see some movement from GBP/USD in the North American session.

Janet Yellen’s testimony on Capitol Hill was a non-event, and her testimony before a Senate Committee on Thursday will likely be more of the same. Yellen’s cautious message didn’t veer from what the markets have already heard from other Fed policy makers. Yellen reiterated that the Fed planned to raise rates “gradually”, and added that the Fed would begin trimming its balance sheet before the end of the year. The Fed chair didn’t provide any timelines, but many analysts are circling September for a balance sheet reduction, with a rate hike to follow in December. However, despite Yellen’s assurances, the markets remain lukewarm about a rate hike before the end of the year. Investors are concerned that the US economy has slowed down in 2017 and may not need another rate hike. In her testimony, Yellen reiterated said that she believes the factors weighing on inflation are temporary. However, she acknowledged that with inflation well below the Fed’s target of 2%, “there could be more going on there”. For their part, the markets remain skeptical about a rate hike. The CME Group has pegged a December rate increase at just 47%, while other forecasts are pointing to odds as low as 40%. Hints from the Fed will not suffice to bring investors on board – unless growth and inflation numbers move higher, the markets are likely to remain lukewarm about the likelihood of a third rate hike in 2017.

Recent British numbers have looked weak, and that is raising concerns that the UK economy may be in a downturn. Last week’s PMI reports, key gauges of the services, manufacturing and construction sectors, all pointed to weaker growth in June. Wednesday’s employment numbers were not all that bad, but nevertheless were not as strong as previous readings. Wage growth dipped to 1.8% in May, compared to 2.1% a month earlier. This marked the first reading below the 2.0% level since February 2016. Unemployment rolls expanded by 6.0 thousand, better than the forecast of 10.5 thousand. Despite softer wage growth, inflation climbed to 2.9%, its highest level in almost 4 years. The BoE is divided on whether to raise rates before the end of the year, and policymakers are in an unenviable position regarding a rate hike – the economy is showing some signs of weakness, but inflation is running at 3%, well above the BoE’s target. A weak British currency has contributed to high inflation, while at the same reducing the purchasing power of the British consumer.

GBP/USD Fundamentals

Thursday (July 13)

• 4:30 BoE Credit Conditions Survey
• 8:30 US PPI. Estimate 0.0%. Actual 0.1%
• 8:30 US Unemployment Claims. Estimate 245K. Actual 247K
• 8:30 US Core PPI. Estimate 0.2%. Actual 0.1%
• 10:00 US Federal Chair Janet Yellen Testifies
• 10:30 US Natural Gas Storage. Estimate 59B
• 11:30 US FOMC Member Charles Evans Speaks
• 13:00 US FOMC Member Lael Brainard Speaks
• 13:01 US 30-y Bond Auction
• 14:00 US Federal Budget Balance. Estimate -36.2B

Upcoming Key Events

Friday (July 14)

• 8:30 US CPI. Estimate 0.1%
• 8:30 US Core CPI. Estimate 0.2%
• 8:30 US Core Retail Sales. Estimate 0.2%
• 8:30 US Retail Sales. Estimate 0.1%
• 10:00 US Preliminary UoM Consumer Sentiment. Estimate 95.1

*All release times are EDT

*Key events are in bold

GBP/USD for Thursday, July 13, 2017

GBP/USD July 13 at 11:15 EDT

Open: 1.2891 High: 1.2955 Low: 1.2889 Close: 1.2931

GBP/USD Technical

• GBP/USD posted losses but recovered in the Asian session. The pair posted gains in the European session and is choppy in North American trade
• 1.2865 has switched to a support role. It is a weak line
• 1.2946 is the next resistance line

Further levels in both directions:

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

OANDA’s Open Positions Ratio

GBP/USD ratio is showing movement towards long positions. Currently, short positions have a majority (57%), 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.