GBP/USD – Pound Gains Continue, Investors Eye Fed Statement

The British pound has posted gains for a second straight day. In Wednesday’s North American session, GBP/USD is trading at 1.4207, up 0.40% on the day. On the release front,  ADP Nonfarm Payrolls slowed to 234 thousand, but this was much stronger than the estimate of 186 thousand. There was positive news from the housing sector, as Pending Home Sales improved to 0.5%, matching the estimate. Later in the day, the Federal Reserve will release a rate statement, and is expected to hold rates at a range between 1.25% -1.50%. On Thursday, the UK releases Manufacturing Production, while the US will publish unemployment claims and the ISM Manufacturing PMI.

Recent reports have forecast that the British economy will be negatively impacted by Brexit, but someone forgot to tell the gloomy news to the British pound. The currency has posted a sharp 5.2% gain in January, as the USD selloff saw the dollar’s rivals post strong gains. Last week, the pound pushed above 1.43, its highest level since June 2016. On the political front, Theresa May can only wish that her position was as strong as the pound. The May government is facing strong domestic criticism over its handling of the Brexit negotiations, and the Europeans are in no mood to show any generosity as the Britain departs the European Union in just over a year.

In the latest Brexit development, the EU has drafted guidelines regarding the transition period after Britain leaves the European Union in 2019. The European proposal calls for Britain to abide by EU rules, including freedom of movement, during the transition period which would last until 2020. However, it’s unlikely that the May government will simply accede to this proposal. Britain wants a longer transition period as well as say in the makeup of the transition period.

The Federal Reserve will be in the spotlight later on Wednesday, with the release of rate statement, the final one under Janet Yellen’s watch. The tone of the statement could affect investor sentiment and have a substantial impact on the currency markets. It’s a virtual certainty that the Fed will leaves rates unchanged this time around, although it’s likely that the Fed will raise rates by a quarter-point at the March meeting. Yellen will make way for Jerome Powell, who takes over as chair in early February. Powell is expected to hold the course on monetary policy, which was marked by small, incremental interest rates in order to keep the robust US economy from overheating.

GBP/USD Fundamentals

Tuesday (January 30)

  • 19:01 British BRC Shop Price Index. Actual -0.5%
  • 19:01 British GfK Consumer Confidence. Estimate -9. Actual -13

Wednesday (January 31)

  • 8:15 US ADP Nonfarm Employment Change. Estimate 186K. Actual 234K
  • 8:30 US Employment Cost Index. Estimate 0.5%. Actual 0.6%
  • 9:45 US Chicago PMI. Estimate 64.2. Actual 65.7
  • 10:00 US Pending Home Sales. Estimate 0.5%. Actual 0.5%
  • 10:30 US Crude Oil Inventories. Estimate 0.1M. Actual 6.8M
  • 14:00 US FOMC Statement
  • 14:00 US Federal Funds Rate. Estimate <1.50%

Thursday (February 1)

  • British Manufacturing PMI. Estimate 56.5
  • 8:30 US Unemployment Claims. Estimate 237K
  • 10:00 ISM Manufacturing PMI. Estimate 58.7

*All release times are GMT

*Key events are in bold

GBP/USD for Wednesday, January 31, 2018

GBP/USD January 31 at 11:55 EDT

Open: 1.4151 High: 1.4233 Low: 1.4121 Close: 1.4207

GBP/USD Technical

S1 S2 S1 R1 R2 R3
1.3901 1.4010 1.4128 1.4271 1.4346 1.4439

GBP/USD edged higher in the Asian session. In European trade, the pair posted loses but reversed directions and moved higher. GBP/USD continues to move higher in North American trade

  • 1.4128 is providing support
  • 1.4271 is the next line of resistance

Current range: 1.4010 to 1.4128

Further levels in both directions:

  • Below: 1.4010, 1.3901 and 1.3809
  • Above: 1.4128, 1.4271, 1.4346 and 1.4439

OANDA’s Open Positions Ratio

In the  Wednesday session, GBP/USD ratio is showing short positions with a majority (56%). This is 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.

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.