GBP/USD has posted gains on Wednesday, erasing the losses which marked the Tuesday session. In the North American session, the pair is trading at 1.2220. On the release front, BBA Mortgage Approvals jumped to 38.3 thousand, beating the forecast of 37.3 thousand. US New Home Sales dropped to 593 thousand, short of the forecast of 601 thousand. On Thursday, the UK releases Preliminary GDP, while the US publishes Core Durable Goods Orders and Unemployment Claims.
The pound dipped below the 1.21 line on Tuesday, but recovered after remarks from BoE Governor Mark Carney. The BoE head testified before the House of Lord Economics Affair Committee. Carney, who back in June warned against Britain voting to exit the European Union, said that market fears about fallout from Brexit were “mistaken”. Carney noted that the inflationary impact created by the pound’s descent since June could encourage him to vote against further interest rate cuts in November. As for his view of the pound’s continuing slide, Carney kept his cards close to his chest. He noted that the BoE would not be “indifferent” to the significantly lower exchange rate. The bank lowered rates by a quarter-point in August and broadly hinted at further cuts at its September meeting. However, inflation levels have since moved higher and the economy has not shown signs of serious strain from Brexit. This means that a November cut is on the table, but should not be considered a done deal.
With market anticipation of a US rate hike growing, the odds of a rate hike in December continue to rise. The CME Fed Watch has priced in a December rate hike at 72%. The prospect of a US rate hike for the first time in over a year has bolstered the US dollar against its rivals, including the British pound. The US economy remains strong, buoyed by a labor market that is close to capacity, with unemployment at a healthy 5.0%. Inflation levels remain low and are unlikely to show much improvement in the next few months. Although the Fed would prefer stronger inflation levels, other economic indicators remain strong enough such that the lack of inflation is unlikely to be the critical factor in the Fed rate decision. The Fed will also hold a policy meeting in early November, but it’s unlikely to make any rate moves just before the US presidential election.
Wednesday (October 26)
- 4:30 British BBA Mortgage Approvals. Estimate 37.3K. Actual 38.3K
- 8:30 US Goods Trade Balance. Estimate -60.6B. Actual -56.1B
- 8:30 US Preliminary Wholesale Inventories. Estimate 0.1%. Actual 0.2%
- 9:45 US Flash Services PMI. Estimate 52.4. Actual 54.8
- 10:00 US New Home Sales. Estimate 601K. Actual 593K
- 10:30 US Crude Oil Inventories. Estimate 0.7M
Upcoming Key Events
Thursday (October 27)
- 4:30 British Preliminary GDP. Estimate 0.3%
- 8:30 US Core Durable Goods Orders. Estimate 0.2%
- 8:30 US Unemployment Claims. Estimate 261K
*All release times are EDT
* Key events are in bold
GBP/USD for Wednesday, October 26, 2016
GBP/USD October 26 at 10:25 EDT
Open: 1.2175 High: 1.2236 Low: 1.2155 Close: 1.2216
- GBP/USD was flat in the Asian session and posted gains in European trade. The pair has edged higher in the North American session
- 1.2120 is providing support
- There is resistance at 1.2447
Further levels in both directions:
- Below: 1.2120, 1.1954 and 1.1844
- Above: 1.2447, 1.2525 and 1.2612
- Current range: 1.2120 to 1.2447
OANDA’s Open Positions Ratio
GBP/USD ratio is unchanged on Wednesday. Long positions command a strong majority (61%), indicative of trader bias towards GBP/USD continuing to move higher.