GBP/USD – Pound Rally Stops on Dismal Unemployment Report

GBP/USD has ticked higher in Wednesday trading. In North American trade, GBP/USD is trading at the 1.25 level. On the release front, British Claimant Count Change disappointed with a large gain of 25.5 thousand, well off the estimate of -10.2 thousand. There was better news from wage growth, as Average Earnings Index rose to 2.3%, beating the estimate of 2.1%. The unemployment rate remained steady at 4.7%.  President Donald Trump will conduct an interview with the Fox Business Network, and will discuss health care, tax reform, and the crisis in Syria and North Korea. On Thursday, the BoE releases its quarterly credit conditions survey. The US will release three key indicators – PPI, Unemployment Claims and the UoM Consumer Sentiment.

On Monday, Federal Reserve Chair Janet Yellen said that with the economy close to full employment and 2 percent inflation, Fed policymakers were looking to reduce the support that the central bank was providing the economy. The minutes of the March meeting indicated that the Fed plans to trim the $4.5 trillion balance sheet, which has ballooned as a result of the huge asset-purchase program which started in 2008. The Fed plans to raise rates twice more in 2017, with the next rate expected in June. Yellen emphasized that the Fed’s policy stance is neutral, as interest rate increases will be gradual, given that the economy is growing at a moderate pace.

The pound has posted gains against the US dollar this week, as risk appetite has diminished due to geopolitical tensions. Investors remain cautious over ominous developments in Syria and North Korea. The US bombed a Syrian military base last week, in response to a chemical attack by Syrian warplanes. Russia has strongly condemned the US move, chilling relations even further between the US and Russia. President Trump has also sent warships to the Korea peninsula, in a show of strength against North Korea, which continues to test ballistic missiles in defiance of the international community. If tensions escalate on either of these fronts, the pound could resume its rally.

Britain triggered Article 50 at the end of March, officially ushering in the negotiations stage in the Brexit process. However, actual negotiations are unlikely to commence until late in the year, given that Germany will hold elections in September, and the EU will not enter the complex talks until a new German government is in place. It’s anyone’s guess as to how smooth the talks will go, and the fate of the pound could be closely tied to the talks. If the negotiations go smoothly, the pound could recover up to $1.50, its level on the eve of the stunning Brexit vote back in June. On the other hand, if the talks hit a deadlock, analysts are forecasting that the pound could drop as low as $1.10. With the BoE in a neutral stance as far as interest rate policy, the fortunes of the pound appear closely tied to the success of the Brexit negotiations, rather than any moves by the BoE.

GBP/USD Fundamentals

Wednesday (April 12)

• 8:30 British Average Earnings Index. Estimate 2.1%. Actual 2.3%
• 8:30 British Claimant Count Change. Estimate -10.2K. Actual 25.5K
• 8:30 British Unemployment Rate. Estimate 4.7%. Actual 4.7%
• 8:40 BoE Governor Mark Carney Speech
• 10:00 US President Trump Speech
• 23:01 British House Price Balance. Estimate 22%

Thursday (April 13)

• 8:30 BoE Credit Conditions Survey
• 12:30 US PPI. Estimate 0.0%
• 12:30 US Unemployment Claims. Estimate 242K
• 14:00 US Preliminary UoM Consumer Sentiment. Estimate 97.1

*All release times are GMT

*Key events are in bold

GBP/USD for Wednesday, April 12, 2017

GBP/USD April 12 at 12:55 EST

Open: 1.2488 High: 1.2521 Low: 1.2479 Close: 1.2492

GBP/USD Technical

• GBP/USD was flat in the Asian and European sessions. The pair edged higher in North American trade but has retracted
• 1.2471 is a weak support level
• 1.2571 is the next resistance line

Further levels in both directions:

• Below: 1.2471, 1.2351, 1.2272 and 1.2154
• Above: 1.2571, 1.2706 and 1.2865
• Current range: 1.2471 to 1.2571

OANDA’s Open Positions Ratio

In the Wednesday session, GBP/USD ratio is showing long positions with a slight majority (53%). This is indicative of slight trade bias towards GBP/USD continuing to move higher.

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.