GBP/USD – Pound Edges Lower as Manufacturing Production Slides

GBP/USD has reeled off five straight winning sessions, but that trend could end on Wednesday, as the pair has posted slight losses. Currently, the pair is trading at 1.3370. On the release front, it’s a busy day in the UK. Manufacturing Production came in at -0.9%, shy of the forecast of -0.4%. There was better news from Industrial Production, which gained 0.1%, beating the forecast of a 0.3% decline. We’ll get a look at the NIESR GDP Estimate later in the day. In the US, today’s major event is JOLTS Job Openings. The markets are expecting a slight downturn in August, with an estimate of 5.58 million. On Thursday, the US will release Unemployment Claims.

After a strong British Manufacturing PMI in August, there was hope that Manufacturing Production would follow suit with a strong reading. However, this was not to be, as the key indicator slid 0.9%. This marked a second straight contraction and the weakest reading since February. This disappointing release was tempered by Industrial Production, which remained unchanged at 0.1%. The Bank of England will be in the spotlight on Wednesday, as BoE Governor Mark Carney will discuss inflation before a parliamentary committee. With the bank’s rate cut in August still fresh in the minds of market players, Carney’s remarks will be closely monitored and could result in some volatility from GBP/USD.

The US dollar was broadly lower on Tuesday, courtesy of a soft services report. ISM Non-Manufacturing PMI, a key gauge of the services sector, fell to 51.4 points, its weakest reading since August 2010. The British pound jumped on the bandwagon, climbing 130 points and hitting 7-week highs. The robust US labor market hit a bump in August, as US employment numbers were dismal on Friday. Nonfarm Payrolls plunged to 151 thousand in August, down from 255 thousand a month earlier. This was well short of the forecast of 180 thousand. Wage growth also disappointed, as Average Hourly Earnings edged lower to 0.1%, shy of the forecast of 0.2%. The CME FedWatch Tool is showing a substantial drop in the odds of a rate hike for both September and December – the likelihood of a September rise is at 19%, while the odds of a December hike are down to 39%. Even though the US labor market remains close to full capacity, many FOMC members remain uneasy about a rate hike, especially given the persistent lack of inflation in the economy. Key inflation indicators will be released in mid-September, just before the Fed policy meeting on September 21. These releases could play a critical role in determining if the Fed presses the rate trigger this month, or decides to revisit the rate question in December, exactly a year from the last rate hike.

GBP/USD Fundamentals

Wednesday (September 7)

• 3:30 British Halifax HPI. Estimate -0.3%. Actual -0.2%
• 4:30 US Manufacturing Production. Estimate -0.4%. Actual -0.9%
• 4:30 British Industrial Production. Estimate -0.3%. Actual +0.1%
• 9:15 British Inflation Report Hearings
• 10:00 British NIESR GDP Estimate
• 10:00 US FOMC Member Esther George Speaks
• 10:00 US JOLTS Jobs Openings. Actual 5.58M
• 10:00 US Beige Book
• 19:01 British RICS House Price Balance. Estimate 5%

Thursday (September 8)

• 8:30 US Unemployment Claims. Estimate 264K

*All release times are EDT

* Key events are in bold

GBP/USD for Wednesday, September 7, 2016

GBP/USD September 7 at 8:10 EDT

Open: 1.3414 High: 1.3424 Low: 1.3357 Close: 1.3374

GBP/USD Technical

• GBP/USD was flat in the Asian session and has posted slight losses in European trade
• 1.3327 is providing support
• 1.3480 is a strong resistance line

Further levels in both directions:

• Below: 1.3327, 1.3219, 1.3142 and 1.3033
• Above: 1.3480, 1.3667 and 1.3835
• Current range: 1.3327 to 1.3480

OANDA’s Open Positions Ratio

GBP/USD ratio has shown movement towards short positions. Currently, short positions are showing a majority (55%), indicative of trader bias towards GBP/USD continuing to lose 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.