GBP/USD – Pound Yawns Despite Higher UK Jobless Claims

GBP/USD is showing limited movement on Wednesday. In North American trade, the pair is trading at 1.2440. On the release front, British employment numbers were mixed. The Average Earnings Index posted a strong gain of 2.3%, matching the forecast. However, Claimant Count Change rose by 9.8 thousand, well above the estimate of 1.9 thousand. In the US, PPI came in at at flat 0.0%, short of the forecast of 0.3%. On Thursday, the markets will have plenty of data to digest. The UK will release Retail Sales, while there are a host of major US events, led by CPI. As well, Fed chair Janet Yellen will testify before the Congressional Joint Economic Committee.

One of the results from the pound’s descent since the Brexit vote has been higher inflation levels. However, the recent rise in CPI did not continue in October. CPI posted a gain of 0.9%, shy of the forecast of 1.1%. This follows a gain of 1.0% in September. Meanwhile, BoE head Mark Carney faced a tough grilling from a parliamentary committee on Tuesday. The governor was reminded that the bank slashed its growth forecast for 2017 back in August, only to revise the forecast higher earlier this month. Carney defended that BoE’s projections, acknowledging that the BoE had been too pessimistic in August. He said that the Brexit vote had caused a “slow motion slowdown” rather than a sharp adjustment. Carney added that he planned to step down as governor in 2019, as he agreed to stay on for an extra year (after his four-year term) and remain at the helm of the BoE during Britain’s exit from the European Union.

As the shock subsides from last week’s stunning election upset, what can we expect from President Trump? The markets went on a roller-coaster ride after the election, but appear to have settled down. Market sentiment is currently very favorable towards the dollar, as a Trump presidency (together with a Republican-controlled Congress) could signal a looser fiscal policy and a cut in taxes. This would likely result in greater inflation, which would lead to higher interest rates and hence a stronger dollar. At the same time, Trump is a political enigma, and aside from being “pro-business” he has been very short on specifics with regard to an economic platform. This lack of certainty means the markets could be in for plenty of surprises which could translate into volatility in the currency markets.

With the Federal Reserve meeting for a policy next month, expectations are sky-high that the Fed will press the trigger and raise rates by a quarter-point for the first time in a year. There have been several false starts before, but this time should be different. The Fed has sent out strong signals that it will raise rates, and in the past two rate decisions, some FOMC members voted for an immediate rate hike. The odds of a rate rise currently stand at a remarkable 90 percent, so barring some sharp negative data out of the US, we’ll see a rate hike before the end of 2016.

Fed Hike Odds Near 100%

GBP/USD Fundamentals

Wednesday (November 16)

  • 3:05 US FOMC Member James Bullard Speech
  • 4:30 British Average Earnings Index. Estimate 2.3%. Actual 2.3%
  • 4:30 British Claimant Count Change. Estimate 1.9K. Actual 9.8K
  • 4:30 British Unemployment Rate. Estimate 4.9%. Actual 4.8%
  • 8:30 US PPI. Estimate 0.3%. Actual 0.0%
  • 8:30 US Core PPI. Estimate 0.2%. Actual -0.2%
  • 9:00 BOE Deputy Governor Jon Cunliffe Speech
  • 9:15 US Capacity Utilization Rate. Estimate 75.5%. Actual 75.3%
  • 9:15 US Industrial Production. Estimate 0.2%. Actual 0.0%
  • 9:30 British CB Leading Index. Estimate 0.1%. Actual 0.1%
  • 10:00 US NAHB Housing Market Index. Estimate 63 points
  • 10:30 US Crude Oil Inventories. Estimate 0.4M
  • 16:00 US TIC Long-Term Purchases. Estimate 32.9B

Thursday (November 17)

  • 4:30 British Retail Sales. Estimate 0.5%
  • 8:30 US Building Permits. Estimate 1.19M
  • 8:30 US CPI. Estimate 0.4%
  • 8:30 US Core CPI. Estimate 0.2%
  • 8:30 US Philly Fed Manufacturing Index. Estimate 8.1 points
  • 8:30 US Unemployment Claims. Estimate 257K
  • 10:00 US Fed Chair Janet Yellen Testifies

*All release times are EST

* Key events are in bold

GBP/USD for Wednesday, November 16, 2016

GBP/USD November 16 at 10:05 EST

Open: 1.2450 High: 1.2502 Low: 1.2404 Close: 1.2453

GBP/USD Technical

S1 S2 S1 R1 R2 R3
1.2120 1.2272 1.2351 1.2479 1.2620 1.2778
  • GBP/USD showed limited movement in the Asian session. The pair posted losses in the European session and is unchanged in North American trade
  • 1.2351 is providing support
  • 1.2479 was tested earlier in resistance and is a weak line

Further levels in both directions:

  • Below: 1.2351, 1.2272 and 1.2120
  • Above: 1.2479, 1.2620 and 1.2778
  • Current range: 1.2351 to 1.2479

OANDA’s Open Positions Ratio

GBP/USD ratio is unchanged in the Wednesday session. Currently, long positions command a majority (61%), indicative of trader bias towards GBP/USD breaking out and moving upwards.

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

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.