GBP/USD – Pound Steady as BoE Stays on the Sidelines

The British pound is showing little movement in the Thursday session. In North American trade, GBP/USD is trading at 1.3429, up 0.10% on the day. On the release front, Retail Sales jumped 1.1%, crushing the estimate of 0.4%. As expected, the Bank of England maintained the benchmark rate at 0.50%. In the US, consumer spending climbed, as Core Retail Sales and Retail Sales improved in November, with readings of 1.0% and 0.8%, respectively. Both indicators beat expectations. There was positive news on the employment front, as unemployment claims fell to 225 thousand, well below the forecast of 237 thousand. On Friday, the US releases the Empire State Manufacturing Index.

Earlier on Thursday, the Bank of England maintained interest rates at 0.50%. Although this was not a surprise, the vote was significant in that there were no dissenters, as all 9 policymakers were in agreement for the first time since February. BoE Governor Mark Carney will certainly be pleased with the unanimous vote, but could be on the hot seat as inflation continues to creep higher. CPI climbed to 3.1% in November, edging above the forecast of 3.0%. Inflation is now running at its highest level since March 2012, and Carney will have to write an open letter to open letter to the British finance minister, explaining how the BoE plans to lower inflation closer to the Bank’s target of 2.0%. Carney would rather not raise rates in the next few months, but that could be the most effective tool in bringing down inflation, which is at uncomfortably high levels.

There were no surprises from the Federal Reserve, which raised rates on Wednesday, bringing the benchmark rate to a range between 1.25% and 1.50%. This marked the third rate hike in 2017, testimony to the strong performance of the US economy. The Fed statement was optimistic about the economy, noting that the labor market “remained strong”. It also lowered its unemployment forecast in 2018 from 4.1% to 3.9%, and revised growth for 2018 from 2.1% to 2.5%. Despite this rosy prognosis, the dollar was broadly down after the announcement. Why? One reason is the sore point in the economy – inflation. The Fed has not changed its September forecast for rate hikes next year, with the Fed dot plot indicating that three rate hikes are projected for 2018. This disappointed some investors who would like to see four increases next year. As well, the rate statement said that the Fed did not expect the tax reform legislation to have any long-term effect on the economy, contradicting White House claims that the legislation would trigger substantial growth in the economy.

 

GBP/USD Fundamentals

Thursday (December 14)

  • 4:30 British Retail Sales. Estimate 0.4%. Actual 1.1%
  • 7:00 British MPC Official Bank Rate Votes. Estimate 0-0-9. Actual 0-0-9
  • 7:00 BoE Monetary Policy Summary
  • 7:00 BoE Official Bank Rate. Estimate 0.50%. Actual 0.50%
  • 7:00 BoE Asset Purchase Facility. Estimate 435B. Actual 435B
  • 8:30 US Core Retail  Sales. Estimate 0.6%. Actual 1.0%
  • 8:30 US Retail  Sales. Estimate 0.3%. Actual 0.8%
  • 8:30 US Import Prices. Estimate 0.7%. Actual 0.7%
  • 8:30 US Unemployment Claims. Estimate 237K. Actual 225K
  • 9:30 US CB Leading Index. Actual -0.2%
  • 9:45 US Flash Manufacturing PMI. Estimate 54.0. Actual 55.0
  • 9:45 US Flash Services PMI. Estimate 54.8. Actual 52.4
  • 10:00 US Business Inventories. Estimate -0.1%. Actual -0.1%
  • 10:30 US Natural Gas Storage. Estimate -55B. Actual -69B

Friday (December 15)

  • 8:30 US Empire State Manufacturing Index. Estimate 18.8

*All release times are GMT

*Key events are in bold

 

GBP/USD for Thursday, December 14, 2017

GBP/USD December 14 at 11:35 EDT

Open: 1.3415 High: 1.3472 Low: 1.3392 Close: 1.3429

 

GBP/USD Technical

S1 S2 S1 R1 R2 R3
1.3186 1.3321 1.3402 1.3503 1.3655 1.3809

GBP/USD moved slightly higher in the Asian session, only to surrender those gains in the European session. The pair has reversed directions and is moving higher in North American trade

  • 1.3402 was tested earlier in support. It is a weak line
  • 1.3503 is the next resistance line

Further levels in both directions:

  • Below: 1.3402, 1.3321, 1.3186 and 1.3035
  • Above: 1.3503, 1.3655 and 1.3809
  • Current range: 1.3402 to 1.3503

OANDA’s Open Positions Ratio

GBP/USD ratio is almost unchanged in the Thursday session. Currently, short positions have a majority (53%), indicative of trader bias towards GBP/USD reversing directions and moving lower.

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.