GBP/USD – UK Public Sector Borrowing Disappoints, but Pound Continues to Points Upwards

GBP/USD continues to improve, as the pair trades in the mid-1.52 range in the European session on Friday. The pound has enjoyed a strong week, gaining about 150 points against the US dollar. In economic news, British Public Sector Net Borrowing disappointed, posting a larger deficit than expected. Friday is the first day of the G20 Summit, as central bankers and finance ministers gather in Moscow for a two-day meeting. There are no releases out of the US on Friday.

There was eager anticipation in the markets ahead of US Federal Reserve chair Bernard Bernanke’s testimony in Washington on Wednesday and Thursday, but in the end, Bernanke’s appearance could be characterized as a disappointment. The Fed chair had nothing new to add as he basically served the same menu we’ve seen before with regard to QE and monetary policy. The Fed chief sounded extremely vague when he stated that the Fed bond-buying was “not on a preset course”, leaving the Fed plenty of wiggle room to scale down QE should it choose to do so. Bernanke reiterated that any decision to scale down QE would depend on improving economic conditions. He noted that present unemployment levels (7.6%) were “well above” normal levels, and was careful not to be pinned down by any deadlines for scaling down QE. So, the message from the Fed to the markets seems to be that QE tapering is not on the table before the economy improves and unemployment falls. Bernanke’s testimony did not cause much market volatility, in contrast to recent statements by the Fed, which sent the dollar sharply lower.

The British pound put together a respectable rally this week, and continued to point upwards despite strong US releases on Thursday and a disappointing UK event on Friday. On Thursday, US Unemployment Claims dropped sharply from 360 thousand to 334 thousand, well  below the estimate of 344 thousand. Philly Fed Manufacturing Index jumped from 12.5 points to 19.8 points, its best showing since March 2011. The outstanding reading crushed the estimate of 8.5 points. On Friday, UK Public Sector Net Borrowing pointed to a smaller debt, dropping from GBP10.5 billion to 10.2 billion. However, this was well short of the estimate of 9.4 billion.

Earlier this week, the BOE released the breakdown of how policymakers voted on the interest rate and asset purchase facility (APF) decisions. The votes for both carried with 9-0 unanimous decisions. This was expected with the vote on the key interest rate, but the APF vote was a surprise, as the markets had expected another split vote. In recent decisions, former BOE Governor Mervyn King found himself in the minority which voted to increase APF. This past meeting was the first under new governor Mark Carney, who not only voted against any changes to APF, but convinced all the other policymakers to vote with him. The vote underscores that Carney may run things differently than King did at the BOE, and the market reaction to Carney’s new leadership could impact on the pound.

GBP/USD for Friday, July 19, 2013

GBP/USD July 19 at 12:55 GMT

GBP/USD 1.5246 H: 1.5281 L: 1.5196

GBP/USD Technical

GBP/USD continues to post gains and has climbed to the mid-1.52 range. The pair faces resistance at 1.5309. Given the upward movement we are seeing from the pound, this line cannot be considered safe. There is stronger resistance at 1.5432. This line has held firm since late June. On the downside, the pair is receiving support at 1.5203, which is protecting the 1.52 line. This is followed by a support level at 1.5111.

• Current range: 1.5203 to 1.5309

Further levels in both directions:

• Below: 1.5203, 1.5111, 1.5000, 1.4896, 1.4781 and 1.4690
• Above: 1.5309, 1.5432, 1.5527 and 1.5645

OANDA’s Open Positions Ratio

GBP/USD ratio is back in action after showing little change for most of the week. The ratio is pointing to movement towards short positions. This is not reflected in the pair’s current move, as the pound continues to post modest gains against the dollar. The ratio has a large majority of long positions, indicating that trader sentiment is strongly biased towards the pound making more inroads against the US currency.

The pound is looking sharp this week, and has gained about 150 points so far this week. With no releases out of the US on Friday, the pound should be able to hold onto these gains as we wrap up the trading week.

GBP/USD Fundamentals

•  British Public Sector Net Borrowing. Estimate 9.4B. Actual 10.2B.
• Day 1 of G20 Meeting in Moscow.

*Key releases are highlighted in bold

*All release times are GMT

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