GBP/USD – Pound Under Pressure as US Bond Yields Rise

The British pound has posted small gains in the Wednesday session, erasing the gains seen on Tuesday. In North American trade, GBP/USD is trading at 1.3945, down 0.23% on the day. The sole event on the schedule is Crude Oil Inventories, which posted a gain of 2.2 million, easily beating the estimate of -1.6 million. Thursday will be much busier, as the US releases durable goods orders and unemployment claims.

The US dollar continues to climb against its rivals, and GBP/USD has slipped 2.1% since April 16. Much of the US streak can be attributed to rising yields on US bonds, which have hit 4-year highs this week. On Wednesday, 10-year US Treasury notes climbed to 3.015%, and 2-year bonds have increased to 2.504 percent. With inflation appearing to be on the rise, there are stronger expectations that the Federal Reserve will raise rates four times in 2018, which is good news for the US dollar. With oil pushing above $70 a barrel, there are concerns that inflation will rise, which has pushed bond prices lower and yields upwards. The US currency has also benefited from a reduction in geopolitical risk, with an easing of tensions between North and South Korea, and a lull in the conflict in Syria.

One of the most thorny issues surrounding Brexit is the Northern Ireland border. Ireland is a member of the European Union, and would like to avoid a hard border with the north. However, once Britain leaves the UK, there will have to be some type of border controls between Ireland and Northern Ireland. So far, no satisfactory solution has been found. On Wednesday, Brexit Secretary David Davis said that a solution isn’t needed until the end of the transition period, which concludes in January 2021, since the UK will remain in the single market until that date. What happens after that? Davis would like to see the UK reach a comprehensive trade deal with the EU and a frictionless border, but Brussels may not be interested, with European leaders still smarting over Britain’s exit. Any scenario, called the “backstop plan”, envisions some time of “harmonization” of trade rules between Northern Ireland and the EU. However, the May government has continually expressed opposition to such a plan, so a solution will likely remain elusive until the clock forces the sides to show more flexibility.

Dollar Yields to Higher Rates

GBP/USD Fundamentals

 Wednesday (April 25)

• 10:30 US Crude Oil Inventories. Estimate -1.6M. Actual 2.2M

Thursday (April 26)

• 8:30 US Core Durable Goods Orders. Estimate 0.5%
• 8:30 US Durable Goods Orders. Estimate 1.6%
• 8:30 US Unemployment Claims. Estimate 230K

*All release times are DST

*Key events are in bold

GBP/USD for Wednesday, April 25, 2018

GBP/USD April 25 at 12:40 DST

Open: 1.3940 High: 1.3941 Low: 1.3925 Close: 1.3946

GBP/USD Technical

GBP/USD ticked lower in the Asian session and posted strong losses in European trade. The pair is steady in the North American session

• 1.3901 is providing support
• 1.4010 is the next resistance line
• Current range: 1.3901 to 1.4010

Further levels in both directions:

• Below: 1.3901, 1.3796 and 1.3712
• Above: 1.4010, 1.4128, 1.4227 and 1.4345

OANDA’s Open Positions Ratio

GBP/USD ratio is almost unchanged in the Wednesday session. Currently, short and long positions are almost evenly split, indicative of a lack of trader bias towards GBP/USD.

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.