GBP/USD – US Dollar Improving After Recent Sharp Losses

Following sharp gains by the British pound in the week after the Fed QE announcement, the US dollar has partially recovered. On Friday, GBP/USD is trading just above the psychologically significant 1.60 level. In economic news, the US posted excellent numbers on Thursday, led by a solid Unemployment Claims release. There are no major releases out of the US on Friday, but we could see some movement from GBP/USD as several Federal Reserve policymakers speak, including FOMC Member James Bullard, who will address an event in New York City. In the UK, Public Sector Net Borrowing looked abysmal in August, posting a deficit of 11.5 billion pounds in August, compared to a surplus of 1.6 billion in July. This still beat the estimate of a deficit of 11.9 billion pounds.

GBP/USD was up sharply on Wednesday, following the surprise announcement on Wednesday by the Federal Reserve not to taper its bond-buying program. Most analysts had expected the Fed to announce a scaling down of the present bond-buying program of $85 billion/month by as much as $15 billion/month. However, the Fed decided to stay the QE course for now, stating that the US economic data was not strong enough to warrant QE tapering at this time. The Fed also downgraded its forecast for the economy, estimating GDP growth for 2013 at 2.0-2.3%, down from 2.3-2.6% in an earlier forecast. It also lowered its outlook for 2014 from 2.9%-3.1%, down from 3.0-3.5%. The pound soared on the news, gaining over two cents and barreling past the 1.61 level.

Overshadowed by the FOMC Statement were some excellent US releases on Thursday. Unemployment Claims came in at 309 thousand, well below the estimate of 331 thousand. Existing Home Sales rose to 5.48 million, crushing the estimate of 5.27 million, and posting its best level in over three years. The Philly Fed Manufacturing Index rocketed from 9.3 to 22.3 points, its best showing since May 2011. Perhaps if we’d seen this kinds of numbers a week or two ago, the Fed might have introduced QE tapering. In any event, the strong numbers boosted the US dollar, which has battled back, as it trades close to the 1.60 line.

In the UK, the BOE released the minutes of its most recent policy meeting earlier this week. 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 Friday, September 20, 2013

GBP/USD September 20 at 13:10 GMT

GBP/USD 1.6006 H: 1.6012 L: 1.5991

GBP/USD Technical

• GBP/USD continues to lose ground on Friday. The pair is testing support at the significant line of 1.6000. There is a stronger support line at 1.5877.
• On the upside, the pair is facing resistance at 1.6125. This is followed by support at 1.6231. This line has remained intact since late- December 2012.
• Current range: 1.6000 to 1.6125

Further levels in both directions:

• Below: 1.6000, 1.5877, 1.5756, 1.5645, 1.5527 and 1.5432
• Above: 1.6125, 1.6231, 1.6300 and 1.6421

OANDA’s Open Positions Ratio

The GBP/USD ratio is showing movement towards short positions in Friday trading. This is reflected in the pair’s current movement, as the dollar has posted modest gains against the pound. 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.

After tumbling in mid-week, the dollar has battled back against the pound as the pair tests the 1.60 level. We could see the pair continue to trade close to this level, unless there is some dramatic news from Fed policymakers who are making speeches during the day.

GBP/USD Fundamentals

• 8:30 British Public Sector Net Borrowing. Estimate 11.5B. Actual 11.9B.
• 16:30 US FOMC Member Esther George Speaks.
• 16:40 US FOMC Member Daniel Tarullo Speaks.
• 16:55 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.