GBP/USD – British pound slips on BoE warning over hard Brexit

GBP/USD has posted losses in the Thursday session. In North American trade, the pair is trading at 1.2778, down 0.35% on the day. On the release front, British Net Lending to Individuals jumped to GBP 5.0 billion, above the estimate of GBP 4.5 billion. This marked a 4-month high. Later in the day, the U.K. releases GfK Consumer Confidence, with the markets expecting a weak reading of -10 points. In the U.S., the Core PCE Price Index dropped to 0.1%, shy of the estimate of 0.2%. Personal Spending improved to 0.6%, above the estimate of 0.4%. On the labor front, unemployment claims jumped to 234 thousand, well above the estimate of 221 thousand. This was the highest level since May. Later in the day, the Federal Reserve releases the minutes of its November policy meeting. On Friday, the U.S. publishes Chicago PMI. As well, the G-20 begins a two-day summit in Argentina.

It is no secret that a hard Brexit will cause a significant downturn in the British economy. This was reiterated on Wednesday by the BoE financial stability report. The report painted a dismal economic picture if Britain and the EU cannot reach a withdrawal agreement. The BoE warned that a no-deal Brexit would cause the economy to decline by 8 percent, with unemployment rising to 7.5 percent and interest rates jumping to 4 percent. As well, the British pound could shrink by some 25 percent. Bottom line? A hard Brexit would be disastrous for the British economy, triggering a recession worse than the one triggered by the financial crisis back in 2008. On the brighter side, the report noted that GDP would actually rise if the U.K. maintained close economic links with the continent after Brexit.

With the U.S and China trading salvos in their trade war, the markets will be hoping for some good news the G-20 summit in Argentina, which begins on Friday. Analysts aren’t particularly interested in the agenda of the summit, which is likely to be overshadowed by a meeting on the sidelines between President Trump and Chinese President Xi Jimping. The stakes are high, as the tariff spat between the two economic giants threatens to dampen global growth. Will we see a thaw in the tariff spat, or will Trump and Xi take shots at each other’s policies? Trump has threatened to raise tariffs on Chinese products from 10 percent to 25 percent, but this could be grandstanding ahead of the summit. Trump has always preached ‘the art of the deal’, and the markets are hoping that cooler heads will prevail and the U.S. and China can reach some kind of agreement.

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GBP/USD Fundamentals

Thursday (November 29)

• 4:30 British Net Lending to Individuals. Estimate 4.5B. Actual 5.0B
• 4:30 British M4 Money Supply. Estimate 0.3%. Actual 0.7%
• 4:30 British Mortgage Approvals. Estimate 65K. Actual 67K
• 8:30 US Core PCE Price Index. Estimate 0.2%. Actual 0.1%
• 8:30 US Personal Spending. Estimate 0.4%. Actual 0.6%
• 8:30 US Unemployment Claims. Estimate 221K. Actual 235K
• 8:30 US Personal Income. Estimate 0.4%. Actual 0.4%
• 10:00 US Pending Home Sales. Estimate 0.8%
• 10:30 US Natural Gas Storage. Estimate -76B
• 14:00 US FOMC Meeting Minutes
• 19:01 British GfK Consumer Confidence. Estimate -11

Friday (November 30)

• Day 1 – G-20 Meetings
• 2:00 British Nationwide HPI. Estimate 0.1%
• 9:45 US Chicago PMI. Estimate 58.6

*All release times are EST

*Key events are in bold

GBP/USD for Thursday, November 29, 2018

GBP/USD November 29 at 11:00 EST

Open: 1.2824 High: 1.2850 Low: 1.2755 Close: 1.2778

GBP/USD Technical

GBP/USD was flat in the Asian session. The pair posted considerable losses in European trade and is flat in the North American session

• 1.2706 is providing support
• 1.2812 is the next resistance line
• Current range: 1.2706 to 1.2812

Further levels in both directions:

• Below: 1.2706, 1.2589 and 1.2488
• Above: 1.2812, 1.2915, 1.3048 and 1.3173

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