The British pound continues to lose ground, as this week has been all downhill. GBP/USD has now dropped below the psychologically important 1.60 level. The US released some key economic data on Thursday. Employment and Housing numbers were outstanding, but manufacturing numbers continue to look very weak. There are no releases out of the UK on Thursday.
The markets were busy analyzing key US data which was releaseed earlier on Thursday. Unemployment Claims, which had looked weak in January, roared back with its best performance in five years, dropping to 331 thousand new claims. This easily beat the forecast of 369K. Housing Starts also were outstanding, improving to 0.95 million. This beat the forecast of 0.89M, and was the indicator’s highest level since June 2008. Building Permits was not as spectacular, but also came within market expectations. The key indicator remained at 0.90 million, just shy of the estimate of 0.91M. The positive numbers were not echoed by the Philly Fed Manufacturing Index, which fell back into negative territory. The key manufacturing indicator plunged 5.8 points, a very sharp drop. This surprised the markets, which had expected a strong gain of 7.1 points. Coming on the heels of the Empire Manufacturing Index, which also looked dismal, there is concern about ongoing contraction in the US manufacturing sector.
There was some bad news for the UK economy as well, this time out of the World Bank. The well-respected institution downgraded its forecast of British growth for 2013. In its Global Economic Prospects report, which is issued twice a year, the World Bank said that the UK economy would grow by just 1.1% in 2013, a sharp decline from its June forecast of 1.6% growth. The markets have been concerned for quite some time about the sputtering UK economy, and there are fears that the UK could be close to a recession, with the Bank of England forecasting that the economy contracted in Q4 of 2012.The report also outlook for global growth in 2013 from 3.0% to 2.4%, noting that developed economies continue to be weighed down by austerity measures, high unemployment and weak consumer confidence. The World Bank also weighed in on the fiscal crisis in the US, warning that sounded that the ongoing fiscal battles in the US were damaging market confidence.
Federal Reserve Chairman Bernard Bernanke had little to say about the current round of QE, but he did weigh in on the debt ceiling issue. Speaking at the University of Michigan earlier this week, Bernanke urged Congress to raise the debt ceiling. Bernanke further noted that having the Federal Reserve tinker with interest rates will not make much difference to the economy. What is critical, he said, is that Congress ensures that the country’s fiscal house is in order. This would lead to higher interest rates as the economy improves. The US is quickly approaching its debt limit of $16.4 trillion, and the issue promises to be a hot topic in Congress, which is fresh off a bitter fight over the fiscal cliff. That battle left spending cuts and the debt for another day. Republicans have sounded the alarm about the staggering US debt and the crippling effect it can have on the economy. They have vowed to tie the debt ceiling to further spending cuts and want to see cuts to major federal programs such as Medicaid. The Democrats, led by President Obama, are adamantly opposed to cuts in federal programs, and want to deal the issues of the debt ceiling and spending cuts separately.
GBP/USD for Thursday, Jan 17, 2013
GBP/USD Jan 17 at 18:00 GMT
1.5994 H: 1.6039 L: 1.5955
The pound is falling fast, and is trading below the 1.60 line. The pair is receiving weak support at 1.5975. This line was breached earlier today, and could face more activity if the downward trend continues. This is followed by stronger support at 1.5930. On the upside, 1.6062 is the next line of resistance.This line has strengthened as the pair trades at lower levels.
• Current range: 1.5975 to 1.6062.
Further levels in both directions:
• Below: 1.5975, 1.5930, 1.5850, 1.5750 and 1.5468.
• Above: 1.6062, 1.6135, 1.6212, 1.6273, 1.6341 and 1.6471.
OANDA Open Positions Ratios
The GBP/USD ratio has not reflected the volatility of the pair. However, currently we are seeing a slight movement towards long positions. If this trend continues, it could be an indication that the pound will reverse its downwared direction and post gains against the US dollar.
It’s been all downhill this week for the struggling pound as the currency has shed about 150 points against the US dollar. The pound finds itself in unfamiliar territory, below the important 1.60 line. Will the downward trend continue? British data has been uneventful this week, although the markets will be watching Retail Sales, which will be released on Friday. The US will release Consumer Sentiment tomorrow, and we could see GBP/USD react to these two key releases if the readings are not in line with market expectations.
- 13:30 US Building Permits. Estimate 0.91M. Actual 0.90M
- 13:30 US Unemployment Claims. Estimate 369K. Actual 335K
- 13:30 US Housing Starts. Estimate 0.89M. Actual 0.95M
- 15:00 US Philly Fed Manufacturing Index. Estimate 7.1 points. Actual -5.8 points.
*Key releases are highlighted in bold
*All release times are GMT
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