GBP/USD – Pound Remains Quiet, US GDP Shows Strong Expansion

The British pound continues to have a quiet week and is showing little movement in the Thursday session. In North American trade, GBP/USD is trading at 1.3367, down 0.06% on the day. On the release front, British Public Sector Net Borrowing increased to GBP 8.1 billion, below the estimate of GBP 8.3 billion. In the US, Final GDP looked sharp in the third quarter, as the gain of 3.2% was just shy of the estimate of 3.3%. Other US data was a mix. The Philly Fed Manufacturing Index jumped to 26.2, above the forecast of 21.5 points. Unemployment Claims disappointed, climbing to 245 thousand. This was much higher than the estimate of 232 thousand. Friday will be busy on both sides of the pond, so traders should be prepared for some movement from GBP/USD. The UK releases Current Account and Final GDP, while there are three key events in the US – Core Durable Goods, New Home Sales and UoM Consumer Sentiment.

Negotiations between the European Union and Britain over Brexit have been arduous from the start, but the talks are finally shifting to trade relations, as sufficient progress has been made on other issues, such as the size of Britain’s divorce bill and the Northern Ireland border. What will a trade relationship between Britain and the European Union look like? That remains unclear, but it’s no secret that the two sides have very different views of a future trade agreement. For example, will financial services be covered by a new trade deal? BoE Governor Mark Carney waded into the thorny issue on Wednesday, in testimony before a parliamentary committee. Carney took issue with comments by Michel Barnier, the EU’s senior negotiator. Barnier said Britain’s financial services would not be included in a Brexit deal, as no free trade agreements have included financial services. Carney disputed Barnier’s reasoning, saying that British financial system is “effectively the banker for Europe” and there was no reason why the UK and the EU couldn’t maintain some type of free trade in financial services. Clearly, the sides remain far apart on the “end phase” of what a Brexit agreement will look like, and both Britain and the EU will have to show some flexibility in order to hammer out an agreement by March 2019, when Britain leaves the club.

Tax reform was a major theme for President Trump during the election campaign. Just one year in office, Trump and fellow Republicans are celebrating passage of their landmark tax reform legislation, marking Trump’s first major legislative victory in office. On Wednesday, the House of Representatives voted to pass the tax reform bill, after it narrowly passed in the Senate, by a vote of 51-48. Trump is expected to sign the bill into law next week. The tax legislation marks the first major overhaul of the US tax code in 30 years, and reduces corporate taxes from 35% to 21%. After failing to overturn Obamacare, the Republicans finally scored a big win. The Republicans have promised significant tax relief to the middle class, but polls show that the American public remains skeptical. With congressional elections next November, tax reform promises to be a key issue, and could determine which party will control Congress in 2018.

GBP/USD Fundamentals

Thursday (December 21)

• 4:30 British Public Sector Net Borrowing. Estimate 8.3B. Actual 8.1B
• 8:30 US Final GDP. Estimate 3.3%. Actual 3.2%
• 8:30 US Philly Fed Manufacturing Index. Estimate 21.5. Actual 26.2
• 8:30 US Unemployment Claims. Estimate 232K. Actual 245K
• 8:30 US Final GDP Price Index. Estimate 2.1%. Actual 2.1%
• 9:00 US HPI. Estimate 0.4%. Actual 0.5%
• 10:00 US CB Leading Index. Estimate 0.4%. Actual 0.4%
• 10:30 US Natural Gas Storage. Estimate -160B

Friday (December 22)

• 4:30 British Current Account. Estimate -21.5B
• 4:30 British Final GDP. Estimate 0.4%
• 8:30 US Core Durable Goods Orders. Estimate 0.5%
• 8:30 US Durable Goods Orders. Estimate 2.1%
• 8:30 US Personal Spending. Estimate 0.5%
• 10:00 US New Home Sales. Estimate 654K
• 10:00  UoM Consumer Sentiment. Estimate 97.1

*All release times are GMT

*Key events are in bold

GBP/USD for Thursday, December 21, 2017

GBP/USD December 21 at 11:45 EDT

Open: 1.3376 High: 1.3387 Low: 1.3333 Close: 1.3367

GBP/USD Technical

GBP/USD was flat in the Asian session and posted slight losses in the European session. The pair has posted small gains in North American trade

• 1.3321 is providing support
• 1.3402 is the next line of resistance

Current range: 1.3221 to 1.3402

Further levels in both directions:

• Below: 1.3221, 1.3186 and 1.3035
• Above: 1.3402, 1.3503, 1.3655 and 1.3809

OANDA’s Open Positions Ratio

GBP/USD ratio is unchanged in the Thursday session. Currently, short positions have a majority (52%), indicative of slight trader bias towards GBP/USD reversing directions and moving 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.