The markets were treated to a plummeting pound on Thursday, as the British currency has dropped over 200 points. GBP/USD is trading in the high-1.50 range in the North American session. The pound tumbled following a warning from the BOE that it was not planning to raise interest rates, given the UK economy’s performance. In economic news, the BOE maintained asset purchase levels at 375 billion pounds and the benchmark interest rate at 0.50%. The US markets are closed on Monday for the July 4th holiday, so we can expect thin trading in the currency markets.
As widely expected, the BOE did not adjust the asset purchase levels or key interest rate. The BOE generally does not release a rate statement when there is no change to the interest rate, but the central bank did issue a statement on Thursday, and it sent the pound reeling. The BOE warned that global yields had jumped since the US Federal Reserve announced it planned to reduce QE, and that if yields did rise significantly, this could have a negative impact on UK economic growth. The statement further noted that market expectations in the UK of a rise in domestic rates were unwarranted at this time.
The BOE was also in the news on Wednesday, as the central bank released its quarterly credit conditions survey. The report found that demand for credit by businesses rose in Q2, and is expected to rise further in Q3. The BOE also expects an increase in home loans in Q3, which is good news for the UK housing sector. The optimistic report may signal that companies and potential home owners are becoming more confident about the UK economy.
In the US, the markets were treated to four key releases on Wednesday. US employment data continues to improve. ADP Non-Farm Payrolls, an unofficial release which precedes Friday’s government release, posted a gain of 188 thousand, its best showing since March. The estimate stood at 161 thousand. Unemployment Claims, released ahead of the July 4th holiday, came in at 343 thousand, slightly below the estimate of 345 thousand. The US continues to churn out larger trade deficits, as the July release came in at -$45.0 billion, much higher than the estimate of $-40.3 billion. Finally, the ISM Non-Manufacturing PMI looked weak, dropping from 53.7 points to 52.2 points. This was well short of the estimate of 54.3 points.
GBP/USD for Thursday, July 4, 2013
GBP/USD July 4 at 15:30 GMT
GBP/USD 1.5075 H: 1.5283 L: 1.5056
GBP/USD continues to be volatile, and has posted sharp losses in Thursday trading. There is weak resistance at 1.5111. This line could see pressure if the pound shows any signs of recovery. This is followed by resistance at 1.5203. This line has strengthened as the pair has sharply dropped. On the downside, the pair is receiving support from the critical level of 1.5000. We could see this line weaken further if the pound continues to spiral downwards. This is followed by support at 1.4896, which has held firm since mid-March.
- Current range: 1.5ooo to 1.5111
Further levels in both directions:
- Below: 1.5000, 1.4896, 1.4781 and 1.4690
- Above: 1.5111, 1.5203, 1.5309, 1.5432 and 1.5557
OANDA’s Open Positions Ratio
With the pound posting sharp losses, the GBP/USD ratio is showing strong movement towards long positions on Thursday. This can be explained by the fact that the pound’s slide has resulted in numerous short positions being covered, resulting in a much higher percentage of open long positions. The ratio now has a large majority of long positions, in contrast to the close split between long and short positions we have seen for the last week.
- 7:00 Halifax HPI. Estimate 0.4%. Actual 0.6%.
- 11:00 BOE Asset Purchase Facility. Estimate 375B. Actual 375B.
- 11:00 BOE MPC Rate Statement.
- 11:00 BOE Official Bank Rate. Estimate 0.50%. Actual 0.50%.
*Key releases are highlighted in bold
*All release times are GMT