GBP/USD – Strong Gains By Pound Ahead of Fed Statement

After a short break, the pound has resumed its upward march against the US dollar. In Wednesday trading, GBP/USD has pulled away from the 1.59 line and is trading in the high-1.59 range. The markets are keeping a close eye on the US Federal Reserve, which will release a policy statement later in the day. Today’s key US release is Building Permits. Over in the UK, there were no surprises from the BOE, as the voting breakdown for the interest rate and asset purchase facility decisions were unanimous.

All eyes are on the FOMC Statement, which will be released later on Wednesday, after the Federal Reserve winds up a two-day policy meeting. Fed chief Bernanke will follow up with a press conference. The markets have been speculating about QE tapering for months, and we could see the Fed take action in the upcoming statement. However, there is a stronger likelihood that QE tapering will not begin until later in the year, as US economic releases, particularly employment data, could be stronger. Traders should be prepared for some volatility from GBP/USD once the FOMC Statement is released.

Federal Reserve head Bernard Bernanke steps down as head of the US Federal Reserve at the end of January, and it’s not clear who will take over the powerful and prestigious position. Former Treasury Secretary Lawrence Summers was considered the leading contender, but withdrew his nomination, leaving Vice Chairman Janet Yellen as the favored candidate. Yellen is considered dovish and may be hesitant when it comes to QE tapering. Continuing uncertainty about who will take over from Bernanke could lead to some instability in the currency markets.

What’s wrong with the US economy? Last week’s releases were a disappointment, and this week’s releases have not impressed either. Empire State Manufacturing Index, an important release, posted another sharp drop in August. The indicator fell from 8.2 points to 6.3 points. This was way off the estimate of 9.2 points. On Tuesday, US inflation releases continued to point to very low inflation. Core CPI, a key event, posted a paltry gain of 0.1%. The markets will be hoping for some better news from today’s major release, US Building Permits.

In the UK, the BOE released the minutes of its most recent policy meeting. Policymakers voted unanimously (9-0) to maintain interest rates at 0.50% and asset purchase facility at 375 billion pounds. The BOE noted that the UK economy was taking hold, and has revised its forecast for GDP growth for this quarter from 0.5% to 0.7%. Governor Mark Carney recently introduced forward guidance, whereby the BOE has stated that it will not raise interest rates before unemployment falls to 7.0%. Even with the British economy showing improvement, this could take quite some time, as recent unemployment rate levels have been hovering around 7.8%.

GBP/USD for Wednesday, September 18, 2013

GBP/USD September 18 at 11:35 GMT

GBP/USD 1.5967 H: 1.5980 L: 1.5903

GBP/USD Technical

• GBP/USD has posted strong gains in Wednesday’s European session, hitting a high of 1.5980.
• The pair continues to face resistance at the significant line of 1.6000. However, this line has weakened as the pound pushes higher. This is followed by resistance at 1.6125. This line has remained intact since January.
• On the downside, the GBP/USD continues to receive support at 1.5877. This line has strengthened as GBP/USD trades at higher levels. This is followed by support at 1.5756.
• Current range: 1.5877 to 1.6000

Further levels in both directions:

• Below: 1.5877, 1.5756, 1.5645, 1.5527 and 1.5432
• Above: 1.6000, 1.6125, 1.6231 and 1.6300

OANDA’s Open Positions Ratio

The GBP/USD ratio is showing movement towards long positions in Wednesday trading. This is reflected in the pair’s current movement, as the pound has posted sharp gains. The ratio is comprised of a majority of short positions, which reflects a strong bias in favor of the US dollar reversing direction and posting gains against the pound.

The pound continues its September march and has gained over four cents this month against the retreating US dollar. We could see some further movement from the pair later in the day, following the releases of US Building Permits and the FOMC Statement later today.

GBP/USD Fundamentals

• 8:30 Bank of England MPC Asset Purchase Facility Votes. Actual 0-0-9. Estimate 0-0-9.
• 8:30 Bank of England MPC Official Bank Rate Votes. Actual 0-0-9. Estimate 0-0-9.
• 12:30 US Building Permits. Estimate 0.95M.
• 12:30 US Housing Starts. Estimate 0.93M
• 14:30 US Crude Oil Inventories. Estimate -1.2M.
• 14:40 Bank of Canada Governor Stephen Poloz Speaks.
• 18:00 US FOMC Economic Projections.
• 18:00 US FOMC Statement.
• 18:00 US Federal Funds Rate. Estimate <0.25%.
• 18:30 US FOMC Press Conference.

*Key releases are highlighted in bold

*All release times are GMT

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