GBP/USD – Pound Edges Up After Strong UK Employment Data

The British pound has made modest gains against the US dollar in Wednesday trading. This followed excellent employment data out of the UK, as unemployment claims fell to a four-month low. The Bank of England released its minutes from the most recent Monetary Policy Committee, which listed the voting breakdown for the recent interest rate and quantitative easing decisions. In the US, Tuesday’s economic releases did not impress the markets. Existing Home Sales came in well below the market forecast, and the Richmond Manufacturing Index dropped to a six-month low. GBP/USD was trading at the 1.5880 level.

The pound is showing some upward movement against the US dollar for the first time in almost two weeks. The British currency received a boost after an excellent employment news in the UK. Claimant Count Change fell by 12.1 thousand new claims, crushing the estimate of 0.4K. This was the best showing by the key employment indicator since September 2011. The Unemployment Rate also improved, dipping from 7.7%, to 7.6%.The positive numbers are raising hopes that the sluggish UK economy may be improving. The Bank of England released the minutes of the most recent Monetary Policy Committee Meeting. The minutes showed that the vote to maintain interest rates at the current level of 0.50% was a unanimous 9-0, with an 8-1 count in favor of maintaining the current QE at GBP 375 billion per month. One member was in favor of increasing the amount of bank purchases to GBP 400 billion per month. Although the UK economy continues to stumble, another round of QE appears unlikely, unless economic indicators point to a triple-dip recession.

In the US, Existing Housing Sales disappointed the markets. The key housing indicator slipped to 4.94 million, which was well below the estimate of 5.09M. There was more bad news from the manufacturing sector, as the Richmond Manufacturing Index plunged 12 points, its worst showing since July 2012. The markets had anticipated a rise of 4 points. This release was the third dismal manufacturing reading in January, and underscores that the US manufacturing sector is experiencing ongoing contraction.

The US fiscal cliff crisis has taken a short breather, but Congress is getting ready to do battle over the next round of budget negotiations, which have been stalled due to sharp disagreements between the Republicans and Democrats. The Republicans have announced that they will table a proposal in Congress which would extend the debt ceiling until April 15. This would allow the U.S. government to borrow enough money to keep it fully operating for the next three months until the sides can reach an agreement. The recent fiscal cliff agreement postponed the hot issues of spending cuts and the huge US debt, but another fiscal deadline is not far away. On March 1, steep spending cuts to defense and domestic programs are scheduled to take place. After a short period of calm, we can expect more fireworks on Capitol Hill.

GBP/USD for Wednesday, Jan 23, 2013

GBP/USD January 23 at 15:30 GMT

1.5863 H: 1.5891 L: 1.5802

GBP/USD Technical

The pound has made modest gains against the US dollar, but the proximate resistance and support lines (S1 and R1 above) remain intact. The line of 1.5919 is the next line of resistance. This is followed by 1.5975. On the downside, 1.5850 continues to provide support. This line has already seen activity today, and could see more action if the pound retreats.

Current range: 1.5850 to 1.5919.

Further levels in both directions:

• Below: 1.5850, 1.5785, 1.5728, 1.5685, 1.5625 and 1.5568.
• Above: 1.5919, 1.5975, 1.6062, 1.6135, 1.6212, 1.6273, 1.6341 and 1.6471.

OANDA Open Positions Ratios

The GBP/USD ratio continues to show movement in favor of long positions. This component is substantially larger than the short positions, indicating that trader sentiment is strongly biased towards the pound making inroads against the US dollar. The British currency has made slight gains, but it remains to be seen if it can sustain the upward move.

After almost two weeks of being pummeled by the US dollar, the pound is fighting back, and has shown some upward movement.Will this momentum continue? UK employment data was excellent, so the pound could get a boost from these numbers. The US will be releasing some key employment numbers tomorrow, and a reading outside of market expectations could impact on GBP/USD.

GBP/USD Fundamentals

• 9:30 UK Claimant Count Change. Estimate 0.4K. Actual -12.1K
• 9:30 UK Bank of England MPC Meeting Minutes
• 9:30 UK Unemployment Rate. Estimate 7.8%. Actual 7.7%
• 9:30 UK Average Earnings Index. Estimate 1.6%. Actual 1.5%.
• 14:00 US HPI. Estimate 0.7%

*Key releases are highlighted in bold

*All release times are GMT

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.