GBP/USD – Pound Posts Gains as Debt Limit Looms

The British pound has started the trading week with gains against the US dollar. In Monday’s North American session, the pair is trading just above the key 1.60 line. There are no British or US releases on Monday. We’ll get a good look at UK inflation indicators on Tuesday, highlighted by CPI. Over in the US, the markets are closed due for Columbus Day. In Washington, negotiations over the US shutdown and debt ceiling remain deadlocked, as weekend talks failed to achieve a breakthrough.

Over the weekend, negotiations continued on Capitol Hill between the Republican and Democrat Senate leaders, but they failed to reach on agreement on the debt ceiling, which will be reached on Thursday. The parties have made little progress on the budget deadlock, as the government shutdown heads into its third week. A bipartisan proposal has been floated which would fund the government for six months and raise the debt limit until January 31. In the meantime, the impasse on Capitol Hill continues, and it’s hard to see how the markets can remain calm in this crisis-filled atmosphere.

The debt ceiling crisis is generating headlines the world over, as a US default on its financial obligations could lead to severe damage to the global economy. The US is being urged to get its act together, and quickly. The IMF has warned that the continuing uncertainty emanating out of Washington could lead to a world recession. ECB President Mario Draghi has also weighed in, saying that it was “unthinkable” that Congress would not reach an agreement on the debt ceiling.

QE tapering, one of the hottest topics in the markets just a few weeks ago, has quickly moved to the backburner, courtesy of the budget and debt ceiling crises which have gripped Washington. Last week, the Fed released the minutes of its September policy meeting. At that meeting, the Fed surprised the markets by not reducing its bond-purchasing program, which currently runs at $85 billion/mth. The minutes stated that the decision not to begin tapering was a “close call”. This has raised speculation that we could see tapering before the end of the year. However, the Fed is reluctant to make any major moves in the midst of the political crisis the US is currently experiencing. As well, the Fed is “data dependent”, and key releases such as Non-Farm Payrolls have been suspended to the shutdown. This makes it difficult for the Fed to get an accurate picture of the true state of the economy. The bottom line? We may not see any QE moves by the Fed before the end of the year.

GBP/USD October 14 at 12:30 GMT

GBP/USD 1.6005 H: 1.6014 L: 1.5955

GBP/USD Technical

• GBP/USD has posted gains on Monday. The pair crossed above the 1.60 line in the European session.
• The pair is facing resistance at 1.6125. This is followed by a resistance line at 1.6231.
• On the downside, the pair is testing the 1.60 line. Will this key level hold as support? This is followed by support at 1.5877.
• Current range: 1.6000 to 1.6125

Further levels in both directions:

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

OANDA’s Open Positions Ratio

A majority of the open positions in the GBP/USD ratio are short, reflecting a trader bias towards the US dollar posting gains against the pound.

GBP/USD is trading just above the 1.60 line. With the markets closed on Monday in both countries, we’re unlikely to see much movement from the pair for the remainder of the day, unless there is a dramatic breakthrough in Washington.

GBP/USD Fundamentals

• There are no releases out of the US or UK on Monday.

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.