GBP/USD – Pound Soars As Congress Reaches Deal on Debt

GBP/USD has posted huge gains on Thursday, as the US shutdown and debt crisis are finally over. The pound has gained over two cents so far today, as the pair trades in the mid-1.61 range in Thursday’s North American session. The markets are breathing easier as the Senate and House of Representatives voted on Wednesday to fund the government and raise the debt ceiling. The pound also go a boost from a strong UK Retail Sales. Over in the US, Unemployment Claims dropped from last week, practically matching the estimate. The Philly Fed Manufacturing Index easily beat the forecast.

British Retail Sales, a key consumer spending event, looked solid on Thursday and has helped the pound post sharp gains against the dollar. The indicator bounced back from a decline in August and posted a gain in 0.6% for September, edging past the estimate of 0.5%. This strong reading comes on the heels of a spectacular Claimant Count Change release, which dropped to a sixteen-year low.

With the US teetering on the abyss of a possible default  for the first time in its history, the Republicans and Democrats finally reached as deal in Congress on Wednesday to reopen the government and raise the debt ceiling. The agreement passed by wide margins in both the Senate and House. However, the deal provides short-term relief only – the government will be funded until January 15, while the debt limit will be raised until February 7. Both sides agreed to discuss budget issues and try to reach a long-term agreement before December 13. The Republicans appear to be the big losers in this sorry tale, as they failed to obtain any concessions regarding the Obama Health Care Act and are blamed by most of the public for precipitating an unnecessary political and fiscal crisis.

After weeks of bitter partisanship and political brinkmanship, Congress finally got its act together and voted to fund the government and raise the debt ceiling. The shutdown, which lasted for over two weeks and temporarily threw hundreds of thousand of federal employees out of work, is estimated to have cost the economy $24 billion. The cost of the debt crisis is harder to quantify, but has certainly eroded faith in the US economy and perhaps in the US dollar as well. This was underscored by a warning from Fitch Ratings on Tuesday, when the agency put US debt on a negative watch. Fitch stated that the crisis had cast doubt over the credit of the United States and had undermined confidence “in the role of the US dollar as the pre-eminent global reserve currency”.

With the debt crisis out of the way, at least for a while, the markets were able to shift attention to Thursday’s economic numbers. US Unemployment Claims dropped to 358 thousand, down from 374 thousand last week. The estimate stood at 357,000. This figure is quite high due to the layoffs of hundreds of thousands of federal workers during the shutdown, as well as a continuing backlog of claims in California. Today’s other key event, the Philly Fed Manufacturing Index, dropped from 22.3 points to 19.8 points, but still easily beat the estimate of 15.4 points.

GBP/USD for Thursday, October 17, 2013

GBP/USD October 17 at 15:30 GMT

GBP/USD 1.6167 H: 1.6171 L: 1.5941

GBP/USD Technical

• The British pound is up sharply. GBP/USD barreled past the 1.61 in the European session and continues to move higher.
• The pair is facing resistance at 1.6231. This is followed by a resistance line at the round number of 1.6300.
• On the downside, the pair is receiving weak support at 1.6125. This is followed by support at the key level of 1.6000.
• Current range: 1.6125 to 1.6231.

Further levels in both directions:

• Below: 1.6125, 1.6000, 1.5877, 1.5756 and 1.5645
• Above: 1.6231, 1.6300, 1.6421 and 1.6512

OANDA’s Open Positions Ratio

GBP/USD ratio is pointing to sharp movement towards short positions in Thursday trading. This is due to the sharp gains posted by the pound, which has led to numerous long positions being covered, which has resulted in an increased percentage of open short positions. Short positions have a very significant majority of open positions, reflecting a trader bias towards the US dollar reversing position and posting gains against the pound.

GBP/USD has posted strong gains on Thursday, and finds itself in the mid-1.61 range. The pound continues to apply strong pressure on the dollar in the North American session.

GBP/USD Fundamentals

• 8:30 British Retail Sales. Estimate 0.5%. Actual 0.6%.
• 12:30 US Unemployment Claims. Estimate 357K. Actual 358K.
• 14:00 US Philly Fed Manufacturing Index. Estimate 15.4 points. Actual 19.8K.
• 16:45 US FOMC Member Charles Evans Speaks.
• 16:45 US FOMC Member Esther George 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.