GBP/USD – BOE Maintains Interest Rate, QE Levels

GBP/USD is showing some volatility, following the BOE announcement earlier on Thursday. There were no surprises from the BOE, as it maintained present levels for QE and the benchmark interest rate. In the US, today’s highlight was  Unemployment Claims, and the markets were disappointed as the key indicator failed to meet the estimate. 

All eyes were on the Bank of England, which set its interest rate and Asset Purchase Facility (QE) levels. As was widely expected, the central bank continued with more of the same. The benchmark interest rate was pegged at 0.50%, while QE remains at 375 billion pounds each month. The ECB also kept its current rate at 0.75%. Other UK releases were solid. Manufacturing Production rose a robust 1.6%, easily beating the estimate of 0.7%.  The Trade Deficit narrowed, coming in at GBP -8.9 billion. This matched the estimate. Industrial Production had an impressive turnaround, gaining 1.6%. This easily beat the forecast of 0.7%. In the US, Unemployment Claims continued to disappoint, falling below the estimate for the second straight week. The key indicator came in at 368 thousand new claims, higher than the market forecast of 361 thousand. The weak employment figures, coming on the heels of a rise in the Unemployment Rate, will raise concerns about the extent of the US recovery.

The markets continue to be concerned that the UK could lose its AAA credit rating if it does not take further steps to reduce its debt. The Fitch credit rating agency has put the UK’s AAA rating on “negative” outlook for almost a year, which is a warning that it could downgrade the rating. Fitch is concerned that the UK government has stated that it will miss its target of starting to cut the debt in 2015. The government blamed a weak economy and less demand for UK exports from the Eurozone, the UK’s biggest market. The country’s debt hit 68% of GDP in 2012, and if this continues to rise, the UK could be slapped with a downgrade, which would be bad news for the economy and the British pound. 

GBP/USD for Thursday, February 7, 2013

GBP/USD February 7 at 15:25 GMT

1.5709 H: 1.5769 L: 1.5646

GBP/USD Technical

We are seeing some volatility from the pair, as the markets react to the BOE decisions on interest rate and QE levels. The pair is testing the 1.57 line after retracting from gains made earlier. The pair is receiving support at 1.5685. This is a weak line, which has already been tested today, and could see further action. There is stronger support at 1.5625. On the upside, there is resistance at 1.5728. Given the volatility we are seeing, this line cannot be considered safe. This is followed by stronger resistance at 1.5785.

Current range: 1.5685 to 1.5728.

Further levels in both directions:

• Below: 1.5685, 1.5625, 1.5568, 1.5481 and 1.5395.
• Above: 1.5728, 1.5785, 1.5850, 1.5919, 1.5975 and 1.6062.

OANDA Open Positions Ratios

The GBP/USD ratio has abruptly changed directions, and is now pointing to a strong shift towards long positions. Earlier today, the pound did flex some muscle, but has coughed up some of those gains. With the continuing volatility in GBP/USD, we can expect movement in the ratio as well.

GBP/USD is showing a lot of volatility, as the markets continue to digest today’s announcements from the BOE as well as the releases of US Unemployment Claims. We could see the strong fluctuations continue as the pound struggles to find its footing.

GBP/USD Fundamentals

• 9:30 British Manufacturing Production. Estimate 0.7%. Actual 1.6%.
• 9:30 British Trade Balance. Estimate -8.9B. Actual 8.9B.
• 9:30 British Industrial Production. Estimate 0.7%. Actual 1.1%.
• 9:45 British BOE Governor-Designate Mark Carney Speaks.
• 12:00 British Asset Purchase Facility. Estimate 375B. Actual 375B.
• 12:00 British MPC Rate Statement.
• 12:00 British Official Bank Rate. Estimate 0.50%. Acutal 0.50%.
• 13:30 US Unemployment Claims. Estimate 361K. Actual 368K,
• 13:30 US Preliminary Non-Farm Productivity. Estimate -1.3%. Actual -2.0%.
• 13:30 US Preliminary Unit Labor Costs. Estimate  Actual 4.5%. Estimate 3.1%.
• 14:30 US FOMC Member Jeremy Stein Speaks.
• 15:00 British NIESR GDP. Actual 0.0%.
• 15:30 US Natural Gas Storage. Estimate -135B.
• 20:00 US Consumer Credit. Estimate 141.1B.

*Key releases are highlighted in bold

*All release times are GMT

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