GBP/USD – Pound Soars as UK Employment Data Shines

The British pound was up sharply on Wednesday, recovering the losses it sustained a day earlier. GBP/USD has gained over 100 points as it trades just shy of the key 1.60 level. The pound got a lift from another sharp decline in unemployment claims, as well as a drop in the Unemployment Rate to 7.6%, its lowest level in over four years. There are no major releases out of the US on Tuesday.

British employment numbers were impressive on Wednesday, and the pound responded with a sharp rise. Claimant Count Change continues to post strong declines, with the October reading of -41.7K repeating the September figure. This easily beat the estimate of -33.2K. No less significant was the Unemployment Rate, which edged lower to 7.6%, its lowest level since June 2009. This has increased speculation that the BOE may lower rates earlier than its forecast of 2016. The Bank has said that unemployment must fall below 7.0% before it will act, and investors increasingly are of the opinion that this threshold will be reached in 2015. The always-cautious BOE has acknowledged the improving UK economy, and in its recent inflation report, it referred to the economy as growing “robustly”.

The UK released a host of inflation indicators on Tuesday and the numbers were disappointing, as almost all of the indicators fell short of their estimates. The key release was CPI, one of the most important economic releases. The index posted a gain of 2.2% in October, compared to 2.7% the month before. This was short of the estimate of 2.5%. Other inflation indicators also disappointed, pointing to weakening inflation in the UK economy. This will likely diminish expectations of a rate hike by the BOE in response to improving economic numbers.

It’s been an unusually quiet week so far in the US, with no major events due for release until Thursday. However, the dollar is managing just fine, riding on the coattails of Friday’s superb Non-Farm Payrolls. The markets had very low expectations from the key indicator, one of the most important economic releases. The estimate for the October release stood at just 121 thousand, as there was concern that the reading would be artificially low due to the government shutdown in October. However, the indicator put those concerns to rest, as the indicator soared to 204 thousand, its highest level in eight months. The outstanding NFP figure bolstered the US dollar against the major currencies, and has increased speculation that the Fed might press the tapering trigger in December. Such talk could bolster the US currency, as a reduction in QE is bullish for the dollar. At the same time, speculation about a scaling down in QE introduces some uncertainty and volatility in the currency markets.

GBP/USD for Wednesday, November 13, 2013

GBP/USD November 13 at 16:35 GMT

GBP/USD 1.6014 H: 1.6016 L: 1.5879

GBP/USD Technical

• GBP/USD has posted sharp gains in Wednesday trading. The pair has been climbing since the European session and pushed above the key 1.60 in North American trading.
• 1.6000 has reverted to a support line. It could continue to see action during the North American session. There is stronger support at 1.5877.
• On the upside, 1.6125 is providing strong resistance. This is followed by resistance at 1.6231.
• Current range: 1.6000 to 1.6125.

Further levels in both directions:

• Below: 1.6000, 1.5877, 1.5756 and 1.5645 and 1.5537
• Above: 1.6125, 1.6231, 1.6300 and 1.6476

OANDA’s Open Positions Ratio

GBP/USD ratio continues to point to movement towards long positions on Wednesday. This is reflected in the current movement of the pair, as the pound has posted sharp gains. Short positions continue to dominate the open positions, reflecting a trader bias towards the US dollar reversing direction  and moving to higher ground.

The pound has rebounded sharply and pushed above the 1.60 level. With no major US releases on Wednesday, we could see GBP/USD settle down in the North American session.

GBP/USD Fundamentals

• 9:30 British Claimant Count Change. Estimate 2.5%. Actual 2.2%.
• 9:30 British Unemployment Rate. Estimate 7.6%. Actual 7.6%.
• 9:30 British Average Earnings Index. Estimate 0.7%. Actual 0.7%.
• 18:01 US 10-year Bond Auction.
• 19:00 US Federal Budget Balance. Estimate -104.3 B.

*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.