GBP/USD – Pound Holds Steady Despite Manchester Bombing Jitters

GBP/USD has posted small gains on Tuesday. In the North American session, the pair is trading just above the 1.30 line. On the release front, the British budget deficit ballooned to GBP 9.6 billion, higher than the estimate of GBP 8.0 billion. This marked the largest deficit since November 2016. US data was also a disappointment on Tuesday. New Home Sales dropped to 569 thousand, well short of the forecast of 611 thousand. As well, the Richmond Manufacturing Index dropped to just 1 point, compared to a forecast of 15 points. On Wednesday, the Federal Reserve will release the minutes of its policy meeting earlier this month.

Manchester was the latest major European city to suffer a terrorist attack, as a suicide bomber set off an explosion at a rock concert which killed 22 and injured 120 people. It was the worst terrorist attack on British soil since a bombing in London in 2005. GBP/USD has held steady on Tuesday, although the pound did record losses against the euro and the Japanese yen. It’s been quiet on the fundamental front in the UK this week, but that will change on Thursday, with the release of Second Estimate GDP for the first quarter. This event, which should be treated as a market-mover, is expected to post a gain of 0.3%.

The Federal Reserve next meets in June, and the markets are expecting a rate hike at that policy meeting. However, the markets are having a tough time pricing in this event, as the odds of a rate hike have been showing an unusual amount of movement. In late April, a rate hike was priced in at just 50%. The odds have jumped higher in May, and currently the markets have priced in a hike at 78%.  Leaving a June hike aside, a key question is how many more hikes does the Fed have in mind for 2017? On Monday, FOMC member Robert Kaplan stated that three interest increases in 2017 was “appropriate”. Earlier in the year, there was speculation that the Fed might raise rates four times in 2017, but with inflation still below the Fed target of 2.0%, three moves is a more likely scenario. The Fed minutes are expected to underscore support for a June move, but may not shed much light on what happens after that.

With President Trump overseas for his first trip abroad, the White House presented Trump’s 2018 budget to lawmakers in Congress on Tuesday. Trump campaigned on slashing government spending, and the budget lives up to that promise, with major cuts to the Medicaid and the food stamp programs. Trump has outlined an ambitious program to cut government spending by $3.6 trillion in the next 10 years and achieving a balanced budget by 2020. The budget includes $25 billion for paid leave after childbirth and some $200 billion for infrastructure programs. Trump’s budget will face a tough sale on Capitol Hill, with both Democrats and Republicans likely to demand changes. Still, with the cloud of scandals around dismissed FBI director James Comey lingering in the air, Trump can point to the budget as a step forward in his agenda to rein in government spending.

GBP/USD Fundamentals

Wednesday (May 24)

• 4:30 British Public Sector Net Borrowing. Estimate 8.0B. Actual 9.6B
• 6:00 British CBI Realized Sales. Estimate 2. Actual 12
• 9:00 US FOMC Member Neel Kashkari Speaks
• 9:45 US Flash Manufacturing PMI. Estimate 53.2. Actual 52.5
• 9:45 US Flash Services PMI. Estimate 53.3. Actual 54.0
• 9:59 US Richmond Manufacturing Index. Estimate 15. Actual 1
• 10:00 US New Home Sales. Estimate 611K. Actual 569K
• 10:00 FOMC Member Neel Kashkari Speaks
• 17:00 FOMC Member Patrick Harker Speaks

*All release times are EDT

*Key events are in bold

GBP/USD for Tuesday, May 23, 2017

GBP/USD May 23 at 12:50 EDT

Open: 1.2977 High: 1.3022 Low: 1.2951 Close: 1.3008

GBP/USD Technical

• GBP/USD showed limited movement in Asian trade. The pair was choppy in the European session and this has continued in the North American session
• 1.2946 is providing support
• 1.3058 is the next line of resistance

Further levels in both directions:

• Below: 1.2946, 1.2865, 1.2706 and 1.2571
• Above: 1.3058, 1.3121 and 1.3223
• Current range: 1.2946 to 1.3058

OANDA’s Open Positions Ratio

GBP/USD ratio has shown slight movement towards short positions. Currently, short positions have a majority (60%), indicative of trader bias towards GBP/USD reversing directions and moving to lower 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.