GBP/USD – Pound Subdued, US Jobless Claims Impress

GBP/USD is showing limited movement on Thursday. Early in the North American session, the pair is trading at 1.3330. On the release front, it’s a quiet day. US unemployment claims dropped to 259 thousand, beating the estimate of 264 thousand. This reading marked the lowest level for jobless claims in seven weeks. There are no British released on the schedule. On Friday, the UK will release Goods Trade Balance.

The pound dropped 80 points on Wednesday, following a dismal British manufacturing report. Manufacturing Production, a key indicator, declined 0.9% in July, well of the estimate of a 0.4% drop. This marked a second straight contraction and the weakest reading since February. This disappointing release was tempered by Industrial Production, which remained unchanged at 0.1%, above the forecast. Meanwhile, Bank of England Governor Mark Carney testified before a parliamentary committee on Wednesday and had to defend the BoE’s drastic moves in early August, following the shock Brexit vote. At the time, the bank cut rates to an all-time low of 0.25% and expanded the asset-purchase program to GBP 435 billion. Carney was a strong supporter of the losing “Remain” side and has been criticized by some MPs for acting too aggressively in the wake of the Brexit vote. Carney stated that he had no regrets about the bank’s moves, although he did acknowledge that damage to the economy was less than forecast by the bank when it cut rates and expanded the asset-purchase scheme. British data in the third quarter has generally been stronger than forecast, although concerns remain that the dramatic move to depart the EU could send the economy into a tailspin.

Back in August, Fed chair Janet Yellen said that the case in favor of a rate hike had grown. Ever since that speech in Jackson Hole, the markets have been fixated on the possibility of a rate hike prior to the end of 2016. However, a spate of weak US numbers in the past week has lowered the likelihood of a move by the Fed. The CME FedWatch Tool is showing a substantial drop in the odds of a rate hike for both September and December – the likelihood of a September rise has dropped to 15%, while the odds of a December hike are down to 39%. Even though the US labor market remains close to full capacity, many FOMC members remain uneasy about a rate hike, especially given the persistent lack of inflation in the economy. Key inflation indicators will be released in mid-September, just before the Fed policy meeting on September 21. These releases could play a critical role in determining if the Fed presses the rate trigger this month, or decides to revisit the rate question in December, exactly a year from the last rate hike.

GBP/USD Fundamentals

Thursday (September 8)

• 8:30 US Unemployment Claims. Estimate 264K. Actual 259K
• 10:30 US Natural Gas Storage. Estimate 44B
• 11:00 US Crude Oil Inventories. Estimate 0.6M
• 15:00 US Consumer Credit. Estimate 15.7B

*All release times are EDT

* Key events are in bold

GBP/USD for Thursday, September 8, 2016

GBP/USD September 8 at 9:05 EDT

Open: 1.3337 High: 1.3375 Low: 1.3311 Close: 1.3330

GBP/USD Technical

• GBP/USD has shown limited movement in the Asian session. The pair has shown movement in European trade but is unchanged
• 1.3327 was tested in support earlier and is under pressure
• 1.3480 is a strong resistance line

Further levels in both directions:

• Below: 1.3327, 1.3219, 1.3142 and 1.3033
• Above: 1.3480, 1.3667 and 1.3835
• Current range: 1.3327 to 1.3480

OANDA’s Open Positions Ratio

GBP/USD ratio has shown movement towards long positions. Currently, short positions have a small majority (52%), indicative of slight trader bias towards GBP/USD reversing directions and losing ground.

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.