The pound has been unable to find its footing, as the currency continues to lose ground on Thursday. GBP/USD is trading just below the 1.66 line and finds itself at lows not seen since early April. On the release front, British Retail Sales remained unchanged at 0.1%, short of expectations. British Public Sector Net Borrowing posted a smaller deficit in July, beating the estimate. US numbers were solid. Unemployment Claims dropped below the 300 thousand level, beating the estimate. The Philly Fed Manufacturing Index posted a sharp gain in July, while Existing Housing Sales climbed to its highest level in close to a year. In picturesque Jackson Hole, the Federal Reserve is hosting its annual financial symposium.
US numbers impressed the markets on Thursday. Unemployment Claims improved to 298 thousand, lower than the estimate of 302 thousand. The key indicator has now beaten the estimate in six of the past seven readings. Thursday’s other key event, the Philly Fed Manufacturing Index, shot higher in July, rising to 28.0 points. The markets had expected the indicator to slip to 19.7 points. There was more good news on the housing front, as Existing Home Sales improved to 5.15 million, well above the estimate of 5.01 million. This marked the highest level we’ve since September 2013. It’s particularly encouraging that the strong numbers were seen in a wide range of sectors, which points to balanced economic growth.
In a highly anticipated event, the Federal Reserve released its policy meeting minutes on Wednesday. The minutes were hawkish in tone, with the Fed saying that an interest rate hike could come sooner rather than later if employment numbers continue to improve. The Fed said that the economy continues to improve, but the QE program, which is scheduled to wind up in October, will not be accelerated. Once the asset purchase scheme is terminated, the guessing game regarding the timing of a rate hike will only intensify.
In the UK, Retail Sales was a disappointment, with a second straight reading of 0.1%. The weak releases point to weakness in consumer spending. The markets raised an eyebrow on Wednesday, as the BOE minutes pointed to a split vote on the interest rate decision, with BOE board members Martin Weale and Ian McCafferty coming out in favor of an immediate rise in the bank rate. This marks the first split vote on the interest rate level in over three years, and the first under the stewardship of Governor Mark Carney. The surprisingly strong dissent within policymaker ranks could reignite speculation about a raise in rates and bolster the shaky pound. As expected, the BOE decision to hold asset purchases at their present level of 375 billion pounds was unanimous (9-0). Meanwhile, there was some good news from the UK manufacturing front, as CBI Industrial Order Expectations jumped to 11 points last month, up sharply from 2 points in the previous release.
Financial leaders and central bankers from around the world will gather in Jackson Hole, Wyoming for a conference which starts on Thursday. This will be Janet Yellen’s first appearance as Fed chair at the conference. There is speculation that Jackson Hole could be a currency event, which would be a marked departure from the conference’s usual focus on the US labor market and monetary policy. If this is the case, we could see a sharp reaction from the currency markets. Traders should treat Yellen’s speech on Friday as a market-moving event.
GBP/USD for Thursday, August 21, 2014
GBP/USD August 21 at 16:40 GMT
GBP/USD 1.6590 H: 1.6602 L: 1.6664
- GBP/USD lost ground in the Asian session but recovered most of the losses. The pair has been largely unchanged in the European and North American sessions.
- 1.6700 has some breathing room as the pound continues to lose ground.
- 1.6565 is an immediate support line. 16484 is stronger.
- Current range: 1.6565 to 1.6700.
Further levels in both directions:
- Below: 1.6565, 1.6484 and 1.6382
- Above: 1.6700, 1.6825, 1.6920 and 1.7000
OANDA’s Open Positions Ratio
GBP/USD is pointing to gains in long positions in Thursday trade. This is not consistent with the movement we are seeing from the pair, as the pound has posted small losses. The ratio has a large majority of long positions, indicative of trader bias towards the pound reversing its current downward trend and moving to higher ground.
- 8:30 British Retail Sales. Estimate 0.4%. Actual 0.1%.
- 8:30 British Public Sector Net Borrowing. Estimate -1.9B. Actual -1.1B.
- 9:37 British 10-year Bond Auction. Actual 2.57%.
- 12:30 US Unemployment Claims. Estimate 302K. Actual 298K.
- 13:45 US Flash Manufacturing PMI. Estimate 55.7 points. Actual 58.0 points.
- 14:00 US Philly Fed Manufacturing Index. Estimate 19.7 points. Actual 28.0 points.
- 14:00 US Existing Home Sales. Estimate 5.01M. Actual 5.15M.
- 14:00 US CB Leading Index. Estimate 0.6%. Actual 0.9%.
- 14:30 US Natural Gas Storage. Estimate 83B. Actual 88B.
- Day 1 – Jackson Hole Symposium.
* Key releases are highlighted in bold
*All release times are GMT
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