GBP/USD – Pound Weakens As Inflation Fallout Continues

The pound has posted losses on Thursday, as GBP/USD is trading in the mid-1.51 range. In the UK, the only release, RICS House Price Balance, matched the estimate of 11%. It was a disappointing day in the US. Unemployment Claims was unexpectedly weak, jumping to 316 thousand. PPI posted a decline of 0.3%, matching the forecast. Manufacturing data was mixed, as the Empire State Manufacturing Index rose to 10.3 points, while the Philly Fed Manufacturing Index slipped to 6.3 points.

British CPI, the primary gauge of consumer inflation, continues to soften. The index posted a gain of just 0.5% in December, down from a 1% gain a month earlier. This marked the indicator’s weakest gain since May 2000. Meanwhile, inflation in the fourth quarter was 0.9%, shy of the BOE’s forecast of 1.2% back in November. On Tuesday, BOE Governor Mark Carney said that inflation levels could continue to fall, and this could affect any decisions regarding an interest rate hike. It wasn’t long ago that a rate hike seemed imminent, but the dramatic drop in inflation has eased the pressure on the BOE, which could decide not to raise interest rates in 2015. The Federal Reserve, on the other hand, will likely raise rates in the second half of the year. If this divergence in monetary stance continues, market sentiment could sour on the pound in favor of the US dollar.

US employment numbers slipped on Thursday, as Unemployment Claims surprised with a reading of 316 thousand. This was well above the estimate of 299 thousand and was the highest reading since June 2014. However, the first full week of the year often shows a spike in claims, since holiday workers are dismissed, resulting in a higher number of claims. Earlier in the week, JOLTS Jobs Openings climbed to 4.97 million, easily beating the forecast of 4.86 million. This is the indicator’s highest level since January 2001. The strong employment numbers are a welcome result of the robust economy, as the deepening recovery fuels demand for more workers. The health of the labor market is an important component of any decision to raise interest rates, so upcoming employment releases will be under the market microscope as the Fed mulls when to raise interest rates.

Earlier in the week, US retail sales caught the markets off guard with sharp declines in the December readings. Core Retail Sales came in at -1.0%, while Retail Sales followed suit with a loss of 0.9%. Both key indicators recorded their worst showings since May 2010. However, retail sales were solid in the past two months, so the numbers for Q4 will be in positive territory.

GBP/USD for Thursday, January 15, 2015

GBP/USD January 15 at 16:45 GMT

GBP/USD 1.5157 H: 1.5267 L: 1.5154

GBP/USD Technical

• GBP/USD was flat in the Asian session. The pair was choppy in the European session. GBP/USD has posted strong losses in North American trade, breaking below support at 1.5165.
• 1.5165 has switched to a resistance role. It is a weak line and could see more action in the North American session. 1.5282 is stronger.
• 1.5008 is a strong support level.
• Current range: 1.5008 to 1.5165

Further levels in both directions:

• Below: 1.5008, 14873, 1.4781 and 1.4670
• Above: 1.5165, 1.5282, 1.5392, 1.5505 and 1.5644

OANDA’s Open Positions Ratio

GBP/USD ratio is almost unchanged on Thursday. This is not consistent with the pair’s movement, as the pound has sustained losses. The ratio has a majority of long positions, indicative of trader bias towards the pound reversing directions and moving upwards.

GBP/USD Fundamentals

• 00:01 British RICS House Price Balance. Estimate 11%. Actual 11%.
• 13:30 US PPI. Estimate -0.3%. Actual -0.3%.
• 13:30 US Unemployment Claims. Estimate 299K. Actual 316K.
• 13:30 US Core PPI. Estimate 0.2%. Actual 0.3%.
• 15:00 US Empire State Manufacturing Index. Estimate 5.3 points. Actual 10.0 points.
• 15:00 US Philly Fed Manufacturing Index. Estimate 20.3K. Actual 6.3 points.
• 15:30 US Natural Gas Storage. Estimate -224B. Actual -236B.

*Key releases are highlighted in bold

*All release times are GMT

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.