GBP/USD – Pound Close to 6-Week Lows, Markets Eye US Consumer Confidence

GBP/USD has recorded slight losses to start the trading week. Currently, the pair is trading at 1.2940. On the release front, British BBA Mortgage Approvals dipped to 37.0 thousand, within expectations. In the US, today’s only economic event is New Home Sales, with the markets expecting a sharp drop to 598 thousand. On Tuesday, the US releases CB Consumer Confidence, a key consumer indicator.

Central banks took over center stage last week, with both the Bank of Japan and the Federal Reserve setting interest rates and releasing rate statements. The BoJ refrained from making any dramatic moves but did make some minor changes to monetary policy. As widely expected, the Federal Reserve maintained the benchmark interest rate at 0.25%, where it has been pegged since last December. In a highly unusual step, however, three of the ten FOMC members dissented with the decision to hold rates, preferring to raise rates immediately by a quarter-percentage point. This was the first time since December 2014 that three FOMC voting members have dissented with the Fed rate decision. This significant dissent within the FOMC underscores continuing divisiveness within the Fed, with one economist calling the Fed decision “one of the most decisive FOMC meetings in recent memory”. Recent comments from FOMC members regarding a rate hike have conflicted with each other, and the mixed messages have left the markets confused. The surprising level of dissent in Wednesday’s Fed announcement will do little to restore market confidence in the Fed, which back in December 2015 promised up to four rate hikes in 2016, but so far has yet to raise rates this year.

The Fed sent a hawkish message to the markets in its policy statement, hinting broadly at a December rate hike. The Fed stated that “the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.” Reading between the lines, the Fed is looking for stronger inflation numbers, and upcoming inflation indicators (as well as consumer spending and employment) will have a significant impact on the odds of a December rate hike. As far as future rate moves, the Fed was dovish, scaling back projections for 2017 from three to two hikes and lowering its longer-run interest rate forecast to 2.9 percent from 3.0 percent.

GBP/USD Fundamentals

Monday (September 26)

• 4:30 British BBA Mortgage Approvals. Estimate 37.2K. Actual 37.0K
• 10:00 US New Home Sales. Estimate 598K
• 11:45 US FOMC Member Daniel Tarullo Speaks

Tuesday (September 27)

• 10:00 US CB Consumer Confidence. Estimate 98.6

*All release times are EDT

* Key events are in bold

GBP/USD for Monday, September 26, 2016

GBP/USD September 26 at 8:20 EDT

Open: 1.2977 High: 1.2986 Low: 1.2915 Close: 1.2930

GBP/USD Technical

• GBP/USD was flat in the Asian session and has posted considerable losses in the European session
• 1.2899 is providing support
• There is resistance at 1.3033

Further levels in both directions:

• Below: 1.2899, 1.2778 and 1.2612
• Above: 1.3033, 1.3142, 1.3219 and 1.3327
• Current range: 1.2899 to 1.3033

OANDA’s Open Positions Ratio

GBP/USD ratio continues to show long positions with a strong majority (72%). This is indicative of trader bias towards GBP/USD reversing directions and moving to higher 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.