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GBP/USD: Pound Shrugs Off Strong UK Job Numbers

GBP/USD is stable on Wednesday, as the pair trades in the low-1.71 range in the North American session. On the release front, UK employment numbers were excellent, as Claimant Count Change posted its sharpest decline this year, while the unemployment rate dropped to 6.5%, its best performance in over 5 years. However, the Average Earnings Index softened last month and missed the estimate. In the US, Fed chair Janet Yellen continues her testimony on Capitol Hill, as she addresses the House Finance Committee. There was good news on the inflation front, as PPI improved to 0.4% in June, beating the estimate.

British employment numbers were excellent last month, but the impressive data was greeted with a yawn by the high-flying pound. Claimant Count Change came in at -36.3 thousand, easily beating the estimate of -27.1 thousand. The unemployment rate dipped to the key level of 6.5%, which had been touted earlier in the year as a threshold level for a rate hike by the BOE. This matched the estimate.

On Tuesday, British CPI caught the markets by surprise, as the key index jumped to 1.9%, its highest level since January. The rise in inflation has increased speculation about a rate hike by the BOE. However, BOE Governor Mark Carney, testifying before the House of Commons Treasury Committee, said that the central bank would not provide forward guidance as to when the Bank would raise interest rates. Carney added that a decision to raise rates will be driven by market data. So, it appears that market speculation as to when the BOE might make a rate move will only increase as the BOE is intent on keeping the markets in the dark until such time that a rate hike is announced.

Recent US inflation numbers have been weak, so the markets were pleasantly surprised with the June release of the Producer Price index, the primary gauge of inflation in the manufacturing sector. The index improved to 0.4%, beating the estimate of .02%. With Janet Yellen saying that a rate hike could be pushed forward if inflation and employment data exceeds expectations, stronger inflation numbers such as the June PPI will put more pressure on the Fed to raise rates.

The dollar responded positively to Fed chair Yellen’s testimony before a Senate committee on Tuesday. Yellen stated that given current economic conditions, monetary stimulus was still required, but rates could increase sooner than expected if inflation and job numbers improved more quickly than forecast. The markets were quick to give a thumbs-up to the prospect of earlier rate increases, and EUR/USD continues to lose ground. The Fed’s asset purchase program (QE) has flooded the economy with over $2 trillion, keeping interest rates at ultra-low levels, but the Fed has been steadily reducing the program since last December. Currently, the Fed is pumping $45 billion/month into the economy, and the next taper is expected in August, with plans to terminate QE in October.

 

GBP/USD for Wednesday, July 16, 2014

GBP/USD July 16 at 16:00 GMT

GBP/USD 1.7128 H: 1.7151 L: 1.7116

 

GBP/USD Technical

S3 S2 S1 R1 R2 R3
1.6825 1.6920 1.7000 1.7183 1.7228 1.7383

 

Further levels in both directions:

 

OANDA’s Open Positions Ratio

GBP/USD is pointing to gains in long positions in Wednesday trade, reversing the direction seen a day earlier. This is not consistent with the movement of the pair, as the pound has posted small losses. A substantial majority of open positions in the GBP/USD ratio are short, indicative of a trader bias towards the dollar moving to higher levels.

 

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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