GBP/USD – Pound Dips Below 1.30 as Manufacturing Production Declines

The British pound has dropped below the 1.30 level on Tuesday. Currently, GBP/USD is trading at 1.2970, its lowest level in four weeks. On the release front, British Manufacturing Production declined -0.3%, short of expectations. The UK’s trade deficit soared to GBP 12.4 billion, much worse than expected. There are no major US events on the calendar. The US will publish additional employment numbers, with the release of Preliminary Unit Labor Costs. As well, we’ll get a look at Preliminary Nonfarm Productivity, a consumer inflation indicator.

The wobbly pound continues to head lower and has lost 250 points in less than a week. Tuesday brought more discouraging economic data, sending GBP/USD below the symbolic 1.30 line. Manufacturing Production, a key indicator, dropped 0.3%, short of the forecast of 0.0%. This report included the Bexit vote in June, and marked a second straight contraction. There was no relief from Trade Balance, as the trade deficit climbed to GBP 12.4 billion, compared to an estimate of GBP 9.6 billion. Additional third quarter data, which will cover the period immediately after the referendum vote, will likely be soft. Britain’s decision to depart the EU has shaken the financial markets, and the economic fallout, which is just beginning to be measured, is expected to be significant. The BoE is trying to cushion the negative impact of Brexit, and the bank took dramatic action last week, cutting interest rates and expanding asset purchases in an attempt to stabilize the economy. BoE Governor Mark Carney has shown that he is willing to take decisive monetary action in order to bolster the British economy, and further rates cuts could follow prior to the end of the year. Last week’s service and manufacturing PMI reports pointed to contraction, and further soft data could batter the struggling British currency.

Is the US economy back on track? US employment numbers sparkled on Friday, led by Nonfarm Employment Change. The July report surprised the markets with a huge gain of 255 thousand, crushing the estimate of 180 thousand. This release follows the outstanding June reading of 280 thousand. US wage growth has been a soft spot in the robust labor market, but there was positive news as Average Hourly Earnings gained 0.3%, edging above the forecast of 0.2%. As well, Unemployment Claims remained steady at 4.9%. What will the Federal Reserve do with these numbers? Prior to the payrolls release, a September hike was virtually off the table, especially in light of the soft US GDP report in late July. The Fed has made no secret of the fact that any rate move will be data-dependent, and the stellar job numbers will force to Fed to give serious thought to a move in September. US employment and inflation releases in the next few weeks will be critical factors in determining if the Fed makes a move next month, or revisits the rate question in December.

GBP/USD Fundamentals

Tuesday (August 9)

  • 4:30 British Manufacturing Production. Estimate 0.0%. Actual -0.3%
  • 4:30 British Goods Trade Balance. Estimate -9.6B. Actual -12.4B
  • 4:30 British Industrial Production. Estimate -0.1%. Actual +0.1%
  • 6:00 US NFIB Small Business Index. Estimate 94.5
  • 8:30 US Preliminary Nonfarm Productivity. Estimate 0.5%
  • 8:30 US Preliminary Unit Labor Costs. Estimate 1.8%
  • 10:00 US IBD/TIPP Economic Optimism. Estimate 46.2
  • 10:00 US Wholesale Inventories. Estimate 0.0%

*Key releases are highlighted in bold

*All release times are EDT

GBP/USD for Tuesday, August 9, 2016

GBP/USD August 9 at 10:30 GMT

Open: 1.3031 High: 1.3031 Low: 1.2959 Close: 1.2970

GBP/USD Technical

S1 S2 S1 R1 R2 R3
1.2680 1.2778 1.2938 1.3064 1.3142 1.3219
  • GBP/USD posted losses in the Asian session and is flat in European trade
  • 1.2938 is under pressure in support
  • 1.3064 has strengthened following losses by GBP/USD on Tuesday

Further levels in both directions:

  • Below: 1.2938, 1.2778 and 1.2680
  • Above: 1.3064, 1.3142 and 1.3219
  • Current range: 1.2938 to 1.3064

OANDA’s Open Positions Ratio

GBP/USD ratio is unchanged on Tuesday. Long positions command a majority (55%), indicative of trader bias towards GBP/USD reversing directions and moving to higher ground.

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

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental and macroeconomic analysis, Kenny Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in major online financial publications including, Seeking Alpha and FXStreet. Kenny has been a MarketPulse contributor since 2012.