GBP/USD – Pound Ticks Lower, UK Forecasts Lower Growth in 2017

GBP/USD has edged lower on the Wednesday session. In North American trade, the pair is trading slightly above the 1.24 line. The UK released the Autumn Forecast Statement, with the government downgrading its growth forecast for 2017. In the US, there were a host of key releases. Core Durable Goods Orders rose 1.0% and Durable Goods Orders jumped 4.8%, as both indicators easily beat their estimates. UoM Consumer Sentiment climbed to 93.8, above expectations. Other indicators were not as strong. Unemployment Claims were higher than expected, at 251 thousand. New Home Sales slipped to 563 thousand, well below the forecast. Later in the day, we’ll get a look at the FOMC minutes from the November policy meeting.

All eyes were on the Autumn Forecast Statement, which essentially is a mini-UK budget. This marked the first budget since the Brexit vote back in June. Although the pound has plunged 16 percent in that period, but the economy has weathered the post-Brexit period fairly well, consistently putting up numbers which have beaten expectations. However, there are serious concerns that the actual exit from European Union will take a heavy toll on the British economy. The Autumn Statement appears to reflect these worries, as the Office for Budget Responsibility (OBR) revised downwards its growth forecasts for 2016 and 2017. The 2017 forecast has been cut to 1.4% from 2.2%, and the 2018 forecast to 1.7% from 2.1%. However, GDP in 2016 is expected to edge up to 2.1%, compared to the previous forecast of 2.0%. As well, the government has shelved its plan for a budget surplus in 2019-2020, saying it is aiming for a balance budget “as early as possible”.

The US dollar has posted broad gains in November against most major currencies, but one notable exception is the British pound, which continues to hold its own against the strong greenback. With a rate hike in December a near-certainty, sentiment towards the dollar should remain high. However, with a Trump administration taking over the reins, what will happen in early 2017 is a big question mark which could translate into volatility in the markets. Trump’s election promises of more spending and less taxes have been vague and we will have to wait for the new Trump administration to unveil a detailed economic platform. The Federal Reserve is in favor of gradual rate hikes next year, but this assumes that the US economy continues to strengthen. In testimony before a congressional committee last week, Fed chair Janet Yellen acknowledged the uncertainty created by Trump’s victory and said that the Fed might have to adjust its outlook, based on the new president’s economic policies.

GBP/USD Fundamentals

Wednesday (November 23)

• 4:00 BoE External BOE MPC Member Kristin Forbes Speech
• 7:30 British Autumn Forecast Statement
• 8:30 US Core Durable Goods Orders. Estimate 0.2%. Actual 1.0%
• 8:30 US Unemployment Claims. Estimate 241K. Actual 251K
• 8:30 US Durable Goods Orders. Estimate 1.2%. Actual 4.8%
• 9:00 US HPI. Estimate 0.5%. Actual 0.6%
• 9:45 US Flash Manufacturing PMI. Estimate 53.6. Actual 53.9
• 10:00 US New Home Sales. Estimate 591K. Actual 563K
• 10:00 US Revised UoM Consumer Sentiment. Estimate 91.6. Actual 93.8
• 10:00 US Revised UoM Inflation Expectations. Actual 2.4%
• 10:30 US Crude Oil Inventories. Estimate 0.3M. Actual -1.3M
• 12:00 US Natural Gas Storage. Estimate 7B
• 14:00 US FOMC Meeting Minutes

*All release times are EST

* Key events are in bold

GBP/USD for Wednesday, November 23, 2016

GBP/USD November 23 at 11:30 EST

Open: 1.2422 High: 1.2439 Low: 1.2352 Close: 1.2405

GBP/USD Technical

• GBP/USD was flat in the Asian session. The pair posted losses in European trade and continues to lose ground in the North American session
• 1.2351 has weakened in support
• There is resistance at 1.2479

Further levels in both directions:

• Below: 1.2351, 1.2272 and 1.2120
• Above: 1.2479, 1.2620 and 1.2778
• Current range: 1.2351 to 1.2479

OANDA’s Open Positions Ratio

GBP/USD ratio is showing limited movement in the Wednesday session. Currently, long positions have a majority (60%). This is 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.