GBP/USD – Volatile After BOE Decision

GBP/USD is showing some volatility in Thursday trading. The pound climbed sharply as it easily pushed past the 1.50 level and continued all the way to the 1.5060 range. However, it has coughed up some of those gains in the North American session. The catalyst for today’s fluctuations was the policy meeting of the Bank of England. The BOE maintained interest rates as well as Asset Level purchases. The interest rate level decision was widely expected, but there was some talk of an increased QE, as some BOE members, including Governor King, had spoken in favor of increasing asset purchases in order to aid the struggling UK economy. In the end, the BOE voted to maintain QE at the present level of 375 billion pounds. In the US, employment numbers continue to sparkle, as Unemployment Claims fell to 340 thousand, well below the estimate of 354 thousand. However, US Trade Balance deficit widened to $44.4 billion, missing the estimate of a $42.8 billion deficit.

As expected, the ECB maintained interest rates at 0.75% on Thursday. ECB head Mario Draghi reiterated that he expected the Eurozone economy to turn the corner in 2013, but called upon bloc members to implement structural reforms to their economies. He also stated that the ECB’s “monetary policy stance will remain accommodative”. The markets clearly liked what they heard, as the euro has spiked close to one cent since the rate announcement was made. At Thursday’s ECB press conference, Mario Draghi tried to some optimistic about developments in Italy, but it’s difficult to downplay the political crisis, which continues to paralyze the Eurozone’s third largest economy. Center-left leader Pier Luigi Bersani has expressed his readiness to form a minority government with populist leader Beppe Grillo. Grillo, the unpredictable head of the 5 Star Movement, has so far refused to join forces with any other party, and seems content to force new elections. Parliament will sit for the first time next week, and President Giorio Napolitano is expected to begin consultations with party leaders on March 19, as efforts to sort out the political paralysis shift into high gear.

Back in the US, recent US economic data has looked sharp, and has raised speculation that the Fed might wind up its current round of QE, which involves the purchase of $85 billion in assets each month. Although Fed Chair Bernard Bernanke and Vice-Chair Janet Yellen have recently declared that QE will continue, evidence of a stronger recovery would put pressure on the Fed to reconsider. If Friday’s key employment data beats expectations, there will be more pressure on the Federal Reserve to wind down or at least modify its current stimulus package.

GBP/USD for Thursday, March 7, 2013

1.5036 H: 1.5088 L: 1.4968

GBP/USD Technical

The pound has had a rocky day, and the currency again briefly dipped the 1.50 level, before recovering. This pair faces resistance at 1.5053. This line was breached earlier, and could face more activity if the pound can sustain some upward momentum. The next line of resistance is at 1.5138. On the downside, 1.4988 is providing support. It is a weak line, and could face further pressure from the volatile pair. This is followed by 1.4880, a strong support level.

• Current range: 1.4988 to 1.5053

Further levels in both directions:

• Below: 1.4988, 1.4880 and 1.4818
• Above:1.5053, 1.5138, 1.5203, 1.5309 and 1.5395

OANDA’s Open Positions Ratios

The GBP/USD ratio is pointing to strong movement towards long positions. The pair has shown a lot of movement, and did climb sharply earlier in the session, before coughing up some of these gains. With the pound struggling to find its footing, we can expect the ratio to continue to show increased activity.

The pound continues to put on a show, and briefly dipped below the all-important 1.50 level earlier. Will it continue to test this barrier? The BOE did not make any changes, but the markets continue to be nervous about the health of the UK economy, and we can expect the dollar to continue to put pressure on the British currency.

GBP/USD Fundamentals

• 12:00 Bank of England Official Bank Rate. Estimate 0.50%. Actual 0.50%
• 12:00 Bank of England Asset Purchase Facility. Estimate 375B. Actual 375B
• 13:30 US Trade Balance. Estimate -0.6B. Actual -0.2B
• 13:30 US Unemployment Claims. Estimate 354K. Actual 340K
• 13:30 US Revised Nonfarm Productivity. Estimate -1.6%. Actual -1.9%
• 13:30 US Revised Unit Labor Costs. Estimate 4.4%. Actual 4.6%
• 15:30 US Natural Gas Storage. Estimate -135B. Actual -146B
• 18:15 US FOMC Jerome Powell Speaks
• 20:00 US Consumer Credit. Estimate 15.2B
• 21:30 US Bank Stress Test Results

*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.