GBP/USD – Pound Yawns Despite Solid British Job Numbers

The British pound is showing limited movement in the Wednesday session. In North American trade, the pair is trading at 1.2864, down 0.05% on the day. On the release front, British employment numbers looked sharp. Average Earnings Index accelerated to 2.1%, above the estimate of 1.8%. Claimant Change declined 4.2 thousand, compared to an estimate of a gain of 3.2 thousand. Finally, the unemployment rate dropped to 4.4%, edging below the forecast of 4.5%. Over in the US, housing numbers were softer than expected. Building Permits dipped to 1.22 million shy of the forecast of 1.25 million. Housing Starts slowed to 1.16 million, missing the estimate of 1.22 million. Later in the day, the FOMC will release the minutes of its July policy meeting. On Thursday, the UK releases Retail Sales. There are two major events in the US – unemployment claims and the Philly Fed Manufacturing Index.

The pound lost ground on Wednesday, as British CPI remained unchanged at 2.6% in July. Inflation has dropped considerably since May, when CPI came in at 2.9%. With inflation levels weakening, the pressure has eased on the BoE to raise interest rates. BoE policymakers have been divided over monetary policy, with recent policy meetings showing a sizable majority in favor raising rates. However, BoE Governor Mark Carney has come out against raising hikes in the near future, citing continuing uncertainty on how Brexit will affect the UK economy. The BoE still sees high inflation levels ahead, saying that CPI could hit around 3% in October. This means that policymakers will have to make some tough decisions regarding interest rate policy in the next few months.

With the reality of Brexit coming ever closer, there are growing concerns in the British business sector, notably what happens on the “day after”. There has been discussion about a transition period, before the actual departure date from the European Union. This would minimize the destabilizing effect of Brexit on the British economy. On Tuesday, the government said that it will seek an “interim customs agreement” with the continent, which would last up to two years. Under the proposal, Britain would enjoy tariff-free trade with the EU, while being able to negotiate free trade agreements at the same time. However, it’s questionable whether the EU, which has already taken a hard negotiating stance with Britain, will agree with such an arrangement. The two sides will meet next on August 28 for another round of what promise to be arduous talks.

People Are Very Bearish on the Pound

GBP/USD Fundamentals

Wednesday (August 16)

• 4:30 British Average Earnings Index. Estimate. 1.8%. Actual 2.1%
• 4:30 British Claimant Change. Estimate +3.2K. Actual -4.2K
• 4:30 British Unemployment Rate. Estimate 4.5%. Actual 4.4%
• 8:30 US Building Permits. Estimate 1.25M. Actual 1.22M
• 8:30 US Housing Starts. Estimate 1.22M. Actual 1.16M
• 10:30 US Crude Oil Inventories. Estimate -3.0M. Actual -8.9M
• 14:00 US FOMC Meeting Minutes

Thursday (August 17)

• 4:30 British Retail Sales. Estimate 0.2%
• 8:30 US Unemployment Claims. Estimate 240K
• 8:30 US Philly Fed Manufacturing Index. Estimate 18.3

*All release times are GMT

*Key events are in bold

GBP/USD for Wednesday, August 16, 2017

GBP/USD August 16 at 11:20 EDT

Open: 1.2870 High: 1.2903 Low: 1.2841 Close: 1.2864

GBP/USD Technical

• GBP/USD was flat in the Asian session. In European trade, the pair posted gains but then retracted. GBP/USD is showing limited movement in North American trade
• 1.2767 is providing support
• 1.2767 is currently the next resistance line. It is fluid and could see more action in the North American session

Further levels in both directions:

• Below: 1.2639, 1.2479 and 1.2351
• Above: 1.2767, 1.2865, 1.2946 and 1.3058
• Current range: 1.2639 to 1.2767

OANDA’s Open Positions Ratio

GBP/USD ratio continues to show little movement this week. Currently, long positions have a majority (53%), indicative of slight trader bias towards GBP/USD reversing directions 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.