GBP/USD – Pound Edges Higher, US Posts Excellent Data

GBP/USD is showing slight gains in the Thursday session. In the North American session, the pair is trading at the 1.25 level. On the release front, there were no British events on the schedule. In the US, key indicators pointed higher. Unemployment claims rose to 239 thousand, beating the forecast of 245 thousand. The Philly Fed Manufacturing Index soared to 43.3 points, crushing the estimate of 18.5 points. Finally, Building Permits improved to 1.29 million, above the forecast of 1.23 million. On Friday, the UK releases Retail Sales, with the markets expecting a strong gain of 1.0%.

All eyes were on Federal Reserve Chair Janet Yellen earlier this week, as she made her semi-annual appearance before Congress. In her testimony, Yellen was upbeat about the US economy. She noted that inflation is moving towards the Fed’s 2 percent target, the labor market remains red-hot and consumer spending is strong. Yellen’s next challenge can be considered an enviable task – when is the appropriate time to raise rates in order to cool down the economy – in June or as early as March? A rate hike appears to be just a question of time, as Yellen warned that “waiting too long to remove accommodation would be unwise”. If the US economy stays on track in 2017, analysts expect two or three small rate hikes. At the same time, the Fed needs to take into account the economic stance of the new administration, which remains unclear. President Trump has promised to outline a tax reform plan in a few weeks, but has left the Fed and the markets in the dark regarding economic policy. Unless the economy takes an unexpected turn downwards, it’s very likely that the Fed will press the rate trigger by June.

A steady British economy and weak pound has boosted inflation indicators, which continue to point upwards. CPI, the primary gauge of consumer spending, gained 1.8% in January, very close to the forecast of 1.9%. With inflation close to the BoE’s target of 2.0% and the economy performing well, there is growing talk of the central bank raising interest rates in 2017. This sentiment was voiced after the BoE’s recent policy meeting by MPC member Kristin Forbes, who said that the BoE should raise rates if the economy remains strong and inflation continues to move higher. Forbes added that the bank should not put monetary policy on hold as a response to uncertainty over the Brexit process. However, Governor Mark Carney is hesitant to raise rates, despite respectable economic numbers. Carney has warned that the economy could lose steam as Britain prepares for tough negotiations ahead of its exit from the European Union.

GBP/USD Fundamentals

Thursday (February 16)

• 00:15 US FOMC William Dudley Speech
• 8:30 US Building Permits. Estimate 1.23M. Actual 1.29M
• 8:30 US Philly Fed Manufacturing Index. Estimate 18.5 points. Actual 43.3 points
• 8:30 US Unemployment Claims. Estimate 243K. Actual 239K
• 8:30 US Housing Starts. Estimate 1.23M. Actual 1.25M
• 10:30 US Natural Gas Storage. Estimate -130B. Actual -114B

Friday (February 17)

• 9:30 British Retail Sales. Estimate 1.0%

*All release times are GMT

*Key events are in bold

GBP/USD for Thursday, February 16, 2017

GBP/USD February 16 at 11:30 EST

Open: 1.2466 High: 1.2523 Low: 1.2453 Close: 1.2493

GBP/USD Technical

• GBP/USD has posted small gains during the day
• 1.2471 is providing weak support
• 1.2579 is the next resistance line

Further levels in both directions:

• Below: 1.2471, 1.2351, 1.2272 and 1.2143
• Above: 1.2579, 1.2674 and 1.2775
• Current range: 1.2471 to 1.2579

OANDA’s Open Positions Ratio

In the Thursday session, the GBP/USD ratio shows long positions with a majority (57%). This is indicative of trader bias towards GBP/USD continuing to move upwards.

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