GBP/USD – Pound Stems Slide as Construction PMI Beats Estimate

The pound has steadied in the Wednesday session, after recording sharp losses in the Wednesday session. In North American trade, GBP/USD is trading at 1.3603, down 0.07% on the day. On the release front, British Construction PMI improved to 52.5, above the estimate of 50.5 points. Over in the US, ADP Nonfarm Payrolls dropped to 204 thousand, compared to 241 thousand a month earlier. Still, this beat the estimate of 200 thousand. Later in the day, the Federal Reserve will set the benchmark interest rate and issue a rate statement. On Thursday, Britain releases Services PMI, and the US will publish two key indicators – unemployment claims and ISM Non-Manufacturing PMI.

The pound’s woes continue, as the US dollar flexes its muscles against its major rivals. The pound dropped below the 1.36 line on Tuesday, the first time that has happened since early January. Investors have not taken kindly to soft British numbers. GBP/USD dropped sharply on Friday after GDP posted a negligible gain of 0.1%, and there was a repeat performance on Tuesday, as Manufacturing PMI missed the estimate and dropped for a fifth straight month. The poor performance of the economy in the first quarter has dampened expectations that the BoE will raise rates at next week’s rate meeting, with the odds of a hike plunging to 20%, compared to 90% at the beginning of April. Most analysts expect the BoE to delay a rate hike until the second half of the year, with August or November being the most likely months for a rate hike.

What can we expect from the Federal Reserve? At the March policy meeting, policymakers raised rates for the first time in 2018, and are expected to remain on the sidelines at today’s meeting. Analysts will be keeping a close eye on the rate statement for clues about future rate hikes. Although the Fed is currently projecting three rate hikes in 2018, there is growing sentiment that the Fed will bump this up to four increases. The CME Group has priced in a quarter-point hike in June at 93% and one scenario is that the Fed will keep raising rates once each quarter – in June, September and December.  Higher inflation has raised speculation that the Fed will consider raising its rate hike forecast. The Fed’s preferred inflation gauge, the Personal Consumption Expenditures price index, hit the Fed’s target of 2% inflation for the first time in a year in March.

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GBP/USD Fundamentals

Wednesday (May 2)

• 4:30 British Construction PMI. Estimate 50.5. Actual 52.5
• 8:15 US ADP Nonfarm Employment Change. Estimate 200K. Actual 204K
• 10:30 US Crude Oil Inventories. Estimate 1.0M. Actual 6.2M
• 14:00 US FOMC Statement
• 14:00 US Federal Funds Rate. Estimate <1.75%

Thursday (May 3)

• 4:30 British Services PMI. Estimate 53.5
• 8:30 US Unemployment Claims. Estimate 225K
• 10:00 US ISM Non-Manufacturing PMI. Estimate 58.1

*All release times are DST

*Key events are in bold

GBP/USD for Wednesday, May 2, 2018

GBP/USD May 2 at 11:45 DST

Open: 1.3614 High: 1.3666 Low: 1.3580 Close: 1.3603

GBP/USD Technical

GBP/USD was flat in the Asian session. The pair posted gains in European trade but has given up these gains in the North American session

• 1.3494 is providing support
• 1.3613 remains fluid. Currently, it is a weak resistance line
• Current range: 1.3494 to 1.3613

Further levels in both directions:

• Below: 1.3494, 1.3402 and 1.3301
• Above: 1.3613, 1.3712, 1.3796 and 1.3901

OANDA’s Open Positions Ratio

GBP/USD ratio is showing slight movement towards long positions. Currently, long positions have a majority (57%), indicative of 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.