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GBP/USD – Limited Losses As British Current Account Deficit Jumps

GBP/USD has edged lower on Friday, as the pair trades in the mid-1.63 range. In economic news, the British Current Account deficit ballooned to a five-month high. Final GDP posted a strong gain of 0.8% in Q3, but the Public Sector Net Borrowing deficit jumped to an eight-month high. It’s a quiet end to the week in the US, with just two releases on the schedule – Final GDP and Final GDP Price Index.

The week ended on a sour note for British releases, as the Current Account deficit jumped in November to -20.7 billion pounds, up from -13.0 billion a month earlier. This was much higher than the estimate of -13.8 billion. Current Account is closely linked to currency demand, as a larger deficit means a lower demand for British pounds by foreigners for domestic transactions. The pound has sustained modest losses following the release.

Thursday’s US releases were dismal. Unemployment Claims jumped to 378 thousand claims last week, up from 368 thousand the week before. This was well above the estimate of 336 thousand. The previous weak release was attributed to the holiday season, but two consecutive bad releases may raise concerns about the health of the employment market. There was more bad news to follow. Existing Home Sales posted its third consecutive decline, dropping to 4.90 million compared to 5.12 million in the previous release. The Philly Fed Manufacturing Index rose from 6.5 to 7.0 points, but this was way off the estimate of 10.3 points.

After months of standing on the sidelines, Federal Reserve Chairman Bernard Bernanke finally played his hand on Wednesday. At its policy meeting, the Fed announced that it was tapering its QE program by $10 billion a month, commencing in January. This will reduce the Fed’s asset purchases to $75 billion every month, comprised of $40 billion in Treasuries and $35 billion in mortgage bonds. The announcement came as somewhat of a surprise, as most analysts had expected the Fed to hold off on any QE reductions until early next year.

In its dramatic taper announcement, the Federal Reserve was careful to separate tapering from rate hike expectations. Fed chairman Bernard Bernanke stated that interest rates are likely to remain low even after the unemployment rate drops below 6.5%. Previously, the Fed had stated that it would start to consider rate increases when unemployment fell below this level. Bottom line? With the unemployment rate at 7.0%, it could be a while before we see higher interest rates in the US.

Earlier in the week, British Retail Sales posted a gain of 0.3%, up sharply from the -0.7% reading last month. UK employment numbers continued to impress in November. Employment Change continues to post sharp drops, a pattern which we’ve seen since mid-2013. The key indicator came in at -36.7 thousand, beating the estimate of -35.2 thousand. The unemployment rate dropped unexpectedly to 7.4%, its lowest level since May 2009. The markets had expected the rate to remain unchanged at 7.6%. Meanwhile, the breakdown of the BOE’s vote on QE and the Official Bank Rate were both unanimous (9-0) decisions. At the last policy meeting, the Bank maintained QE at 375 billion pounds and the Official Bank Rate at 0.50%.

 

GBP/USD for Friday, December 20, 2013

Forex Rate Graph 21/1/13

GBP/USD December 20 at 10:25 GMT

GBP/USD 1.6339 H: 1.6372 L: 1.6319

 

GBP/USD Technical

S3 S2 S1 R1 R2 R3
1.6125 1.6231 1.6300 1.6476 1.6600 1.6705

 

 

Further levels in both directions:

 

OANDA’s Open Positions Ratio

GBP/USD ratio continues to point to gains in short positions on Friday. This is reflected in the pair’s current movement, as the pound has edged lower against the dollar. Short positions continue to dominate the ratio, reflecting a trader bias towards the US dollar continuing to post gains against the pound.

The pound remains under pressure after a disappointing Current Account release on Friday. With no major US releases on the schedule, movement during the day could be limited in scope.

 

GBP/USD Fundamentals

 

*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.

Kenny Fisher

Kenny Fisher [4]

Market Analyst at OANDA [5]
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.
Kenny Fisher

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