GBP/USD – Pound Soars As Construction PMI Jumps

The British pound reversed direction in fine style on Friday, and has posted sharp gains against the US dollar. The pound has jumped over 150 points on the day, as GBP/USD trades in the mid-1.52 range in the North American session. The pound was buoyed by an outstanding release from British Construction PMI, which posted its best showing since 2010. There was also good news from UK Nationwide HPI, which posted a strong gain and easily beat expectations. On Friday, US Non-Farm Employment Change disappointed, dropping to a three-month low and falling short of the estimate. The US Unemployment Rate dropped and edged below the forecast. Later on Friday, FOMC member James Bullard addresses a finance conference in Boston.

After taking it on the chin at the hands of the US dollar all week, the British pound showed some grit on Friday, and has posted sharp gains. The catalyst for the rise was an excellent reading from the UK Construction PMI. The index jumped from 51.0 to 57.0 points, crushing the estimate of 51.6 points. This is the index’s highest level since June 2010. It comes on the heels of Manufacturing PMI, which also climbed sharply. What is particularly encouraging is that both PMIs have been steadily improving in recent months. We’ll have to wait until Monday to see if Services PMI can keep up the torrid pace. Almost forgotten in the excitement over Construction PMI was a very good reading from Nationwide HPI. The housing inflation index rose from 0.3% to 0.8%, its sharpest gain since August 2012. The estimate stood at 0.4%.

After a strong release from ADP Non-Farm Employment Change and Unemployment  Claims, the markets were hoping that Non-Farm Employment Change would keep the pace, but it was not to be. The key indicator dropped from 195 thousand to 162 thousand, and was way off the estimate of 182 thousand. The Unemployment Rate dropped from 7.6% to 7.4%, its lowest level in over four years. However, this figure is not as impressive as it may seem at first glance, keeping in mind that the participation rate, which is a more significant statistic than the unemployment rate, is hovering at a weak level of about 63%.

As widely expected, the BOE did not make any moves on Thursday. The central bank kept interest rates pegged at a record low of 0.50% and the bond purchase program remained steady at 375 billion pounds. With the recent change in top management at the BOE, new governor Mark Carney continues to be under a lot of market scrutiny. Carney has the respect and attention of the markets, as his tenure at the Bank of Canada was widely judged as a success. Analysts note that Carney practiced forward guidance at the BOC, and is expected to continue his pro-active approach at the BOE.

The US Federal Reserve released a policy statement earlier this week, but there were no dramatic announcements from the US central bank. As expected, the Fed said it would maintain the present levels of QE, which involves $85 billion in asset purchases each month, and gave no indication about when it might scale down QE. There has been talk that the Fed could taper QE as early as September, and the speculation and uncertainty will likely cause volatility in the markets as long as the Fed doesn’t show its cards and keeps the markets in the dark. The Fed gave the US economy a cautious thumbs-up, noting that the economy was growing at a “modest” pace. However, it did voice concern about a possible rise in inflation.

GBP/USD for Friday, August 2, 2013

GBP/USD August 2 at 14:55 GMT

GBP/USD 1.5270 H: 1.5278 L: 1.5103

GBP/USD Technical

GBP/USD has posted strong gains in Friday trading. The pair blasted past the 1.52 line in the European session and is continuing its upward movement in North American trade. GBP/USD is receiving support at 1.5203. The next support level is at 1.5111. This line has strengthened as the pair trades at higher levels.

On the upside, the pair faces resistance at 1.5309. This is a weak line and could be tested during the day. 1.5432 is a stronger resistance line.

• Current range: 1.5203 to 1.5309

Further levels in both directions:

• Below: 1.5203, 1.51111, 1.5000, 1.4896 and 1.4781
• Above: 1.5309, 1.5432, 1.5527, 1.5645 and 1.5756

OANDA’s Open Positions Ratio

GBP/USD ratio has shown movement for the first time this week, pointing to a shift towards short positions. Although we are seeing the pair move higher, this can be explained by the fact that the pound’s sharp rise has led to many long positions being covered. This has resulted in a larger percentage of open short positions.

After a miserable week, the pound has fought back against the dollar, and is testing the 1.53 line. We could see GBP/USD cross into 1.53 territory and post some more gains before the trading week wraps up.

GBP/USD Fundamentals

• 6:00 Nationwide HPI. Estimate 0.4%. Actual 0.8%.
• 8:30 British Construction PMI. Estimate 51.6 points. Actual 57.0 points.
• 12:30 US Non-Farm Employment Change. Estimate 184K. Actual 162K.
• 12:30 US Unemployment Rate. Estimate 7.5%. Actual 7.4%.
• 12:30 US Average Hourly Earnings. Estimate 0.2%. Actual -0.1%.
• 12:30 US Core PCE Price Index. Estimate. 0.1%. Actual 0.2%.
• 12:30 US Personal Income. Estimate 0.5%. Actual 0.3%.
• 12:30 US Personal Spending. Estimate 0.5%. Actual 0.5%.
• 14:00 US Factory Orders. Estimate 2.3%. Actual 1.5%.
• 16:15 US FOMC Member James Bullard Speaks.

*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.