GBP/USD – Pound Slide Resumes on ‘Hard Brexit’ Jitters

GBP/USD has resumed its downward slide on Thursday, following an uneventful Wednesday session. The pair has dropped over 100 points and is trading at 1.2640 in the North American session. On the release front, British Housing Equity Withdrawal came in at GBP -12.6 billion, much weaker than the estimate of GBP -5.4 billion. In the US, unemployment claims dropped to 249 thousand, below the estimate of 255 thousand. On Friday, the US will release three key employment indicators – nonfarm employment change, average hourly earnings and the unemployment rate.

After a disappointing ADP payroll report, US unemployment claims sparkled, dropping to just 249 thousand last week. Unemployment claims have come in below the forecast for 10 straight weeks, pointing to a tight labor market. Jobless filings have been below 300,000 for 83 straight weeks, marking the longest streak since 1970. With a December rate hike up in the air, Friday’s triple-release of US job numbers will be especially important. The markets are expecting some improvement in the September numbers. Non-farm Employment Change is expected to improve to 171 thousand, while Average Hourly Earnings, which measures wage growth, is forecast to edge higher to 0.2%. The unemployment rate has held steady at 4.9% for three months and no change is expected. If the markets are correct and September shows stronger numbers, the US dollar could pick up some ground against the pound. If these releases are soft, however, the Fed could get cold feet and a rate hike could remain on hold until 2017.

Is the British pound headed for new 30-year lows? GBP/USD has posted sharp losses this week, declining 2.3 percent. The pound slipped as low as 1.2620 on Thursday, its lowest level since June 1985. The currency is belatedly responding to ongoing market fears over “hard Brexit”, as EU leaders have consistently told Whitehall that it cannot expect unrestricted access to the European Union and at the same time impose immigration and labor movement restrictions against the continent. On Tuesday, consultancy firm Oliver Wyman projected that the loss of unrestricted access to the EU markets could cost Britain 38 billion pounds in revenue. British numbers in the third quarter have been better than expected, but this has not improved the market’s mood. Although manufacturing and construction PMIs handily beat their estimates this week, the pound nevertheless headed southward. The Bank of England is expected to lower interest rates in November, which is also weighing on the British currency.

GBP/USD Fundamentals

Thursday (October 6)

• 4:30 British Housing Equity Withdrawal. Estimate -5.4B. Actual -12.6B
• 5:36 British 30-year Bond Auction. Actual 1.49%
• 7:30 US Challenger Job Cuts. Actual -24.7%
• 8:30 US Unemployment Claims. Estimate 255K. Actual 249K
• 10:30 US Natural Gas Storage. Estimate 67B

Upcoming Key Events 

Friday (October 7)

• 4:30 British Manufacturing Production. Estimate 0.4%
• 8:30 US Average Hourly Earnings. Estimate 0.2%
• 8:30 US Nonfarm Employment Change. Estimate 171K
• 8:30 US Unemployment Rate. Estimate 4.9%

*All release times are EDT

* Key events are in bold

GBP/USD for Thursday, October 6, 2016

GBP/USD October 6 at 11:00 EDT

Open: 1.2752 High: 1.2754 Low: 1.2620 Close: 1.2642

GBP/USD Technical

• GBP/USD lost ground in the Asian session and posted strong losses in European trade. The pair is showing limited movement in North American trade
• 1.2612 is under pressure in support as GBP/USD has posted sharp losses in the Thursday session
• 1.2778 has strengthened in resistance

Further levels in both directions:

• Below: 1.2612, 1.2525 and 1.2447
• Above: 1.2788, 1.2899 and 1.3033
• Current range: 1.2612 to 1.2778

OANDA’s Open Positions Ratio

GBP/USD ratio is unchanged in the Thursday session. Currently, long positions have a strong majority (72%). 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.