GBP/USD – Pound Keeps Rolling After US Debt Deal

The British pound is taking full advantage of broad dollar weakness, and continues to post gains against the US dollar in Friday trading. GBP/USD climbed over 200 points on Thursday, and  the rally is going strong, with the pair trading at the 1.62 line in Friday’s European session. Over in the US, Congress has agreed to fund the government and raise the debt limit, but only for a few months, so the dollar’s struggles continue. In economic news, US Unemployment Claims dropped from the previous week, while the Philly Fed Manufacturing Index easily beat the estimate. The week is ending on a very quiet note, with no UK releases. In the US, today’s only events are appearances by four Federal Reserve FOMC members.

The pound has enjoyed superb gains this week, and UK economic releases are part of the reason. 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.

After weeks of bitter fighting in Congress, the crisis is finally over, as the Republicans and Democrats finally reached an agreement 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. Could we find ourselves in this nightmarish scenario just a few months down the road? The Republicans appear to be the big losers in this saga, 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.

The fiscal and political crisis which has gripped Washington for weeks has taken a bite out of the economy and hurt US credibility and international standing. The government 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”. Meanwhile, the dollar continues to struggle against the major currencies, and EUR/USD is close to eight-month lows on Friday.

With the crisis in Washington over, at least for while, the markets can shift their attention to US economic data. Unemployment Claims came in at 357 thousand, very close to the estimate of 358 thousand. This figure was an improvement from last week, but still well above previous releases. The shutdown inflated the release, as hundreds of thousands of Federal employees were laid off. The markets will be eagerly waiting for other employment data, such as Non-Farm Payrolls, which was not published during the shutdown and is scheduled to be released on Tuesday.

GBP/USD for Friday, October 18, 2013

GBP/USD October 18 at 11:40 GMT

GBP/USD 1.6188 H: 1.6224 L: 1.6142

GBP/USD Technical

• The British pound continues to post gains on Friday, as the pair trades close to the 1.62 line.
• The pair is facing resistance at 1.6231. Given the strong gains we are seeing from the pound, this line cannot be considered safe. This is followed by strong resistance at the round number of 1.63oo.
• On the downside, the pair is receiving support at 1.6125. The next support level is at 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 has reversed directions on Friday, and is pointing to movement towards long positions. This is consistent with the movement of the pair, as the pound continues to post gains. Short positions maintain a very significant majority of open positions, reflecting a trader bias towards the US dollar reversing position and posting gains against the pound.

The pound is putting strong pressure on the dollar, as GBP/USD trades close to the 1.62 line. We could see the pair settle down during the North American session.

GBP/USD Fundamentals

• 16:30 US FOMC Member Daniel Tarullo Speaks.
• 18:00 US FOMC Member Charles Evans Speaks.
• 19:40 US FOMC Member William Dudley Speaks.
• 20:30 US FOMC Member Jeremy Stein 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.