GBP/USD – Pound Moves Higher Despite Lukewarm UK Numbers

The British pound has moved higher in Wednesday trading, as GBP/USD is showing a lot of movement. The pair began the European session by losing ground, but has rebounded strongly since, and was trading in the mid-1.51 range in early North American trading. The pound shrugged off today’s UK numbers, which were not all that strong.

The markets have plenty of British releases to sift through on Wednesday. Claimant Count Change posted a third consecutive decline, but the March drop was small, at 1.5 thousand. This fell well below the esimate of -5.2 thousand. The Unemployment rate didn’t budge, and remains at 7.8%, as expected. The Bank of England released the minutes of the Monetary Policy Committee’s most recent policy meeting, which showed that  members split over whether to increase QE. Three members of the MPC, including Governor King, voted in favor of increasing the asset purchase program. The 6-3 vote in favor of maintaining current levels was identical to the vote at the previous meeting in February. The vote to maintain current interest rates at 0.50% was unanimous at 9-0. The British goverment released the annual budget, and market analysts will be combing through it carefully. Chancellor George Osborne downgraded the growth forecast for 2013 to 0.6%, well below the December forecast of 1.2%. This is not the first time the government has said that it won’t be able to meet its financial targets, which has undermined market sentiment and wieghed on the pound. However, the British currency managed to shrug off today’s releases and has posted gains against the US dollar.

The island country of Cyprus is usually not the focus of the financial markets, but what was supposed to be a relatively small bailout for a struggling Eurozone member has sent the markets spinning. Over the weekend, a bailout agreement was reached over the weekend between the EU, IMF and the Cypriot government in the amount of 10 billion euros. However, a controversial provision in the agreement has threatened to derail the bailout. Under the terms of the bailout package, deposit holders in Cypriot banks would be levied with a one-time tax, between 6.7% and 9.9%, depending on the size of the deposit. This tax is intended to raise 5.8 billion euros, covering more than half of the 10 billion euro bailout. Taxing bank deposit holders is an unusual step, and the markets fear that it could result in depositors in other Eurozone countries with high debts transferring their funds to countries such as Germany. Cypriots were understandably fuming, as this marked the first time in the Eurozone debt crisis that bank depositors were being asked to take a haircut as part of a bailout. The Cypriot parliament was scheduled to meet in an emergency session on Tuesday to vote on the bank deposit levy and the bailout, but the drama continues, as the vote has been postponed.

Meanwhile, the political deadlock which has paralyzed Italy for several weeks shows no sign of a breakthrough. Even by Italian standards, the political vacuum is bewildering, and the only solution may mean yet another election. Most Italians oppose going back to the polls, but so far, the political leaders have not made any headway as far as forming a new government. Italian President Giorgio Napolitano has asked Prime Minister Mario Monti to stay on until the political crisis subsides. The financial markets are increasingly concerned about the health of the economy. Unemployment is high, borrowing costs are rising, and the country is staggering under a massive debt of two trillion euros. There is increasing concern that a prolonged political vacuum will lead to a full-blown economic crisis in the Eurozone’s third largest economy.

In the US, the Federal Reserve meets for a policy meeting on Wednesday. The markets are watching to see if the Fed continues the current round of QE. With the US recovery looking stronger and unemployment nudging lower, there has been speculation that the Fed might wind down or modify its asset purchasing program. However, Fed head Bernard Bernanke and other senior officials have insisted that QE will continue. If the Fed surprises the markets, we can expect some volatility from USD/CAD.

GBP/USD for Wednesday, March 20, 2013

1.5152 H: 1.5186 L: 1.5028

GBP/USD Technical

The pound has pushed higher against the US dollar in Wednesday trading, and has climbed to the mid-151 range. The pair is facing resistance at 1.5203. This is followed by a resistance line at 1.5309. On the downside, there is support at 1.5053. This line is protecting the important 1.50 level. The next support level is at 1.4988.

• Current range: 1.5138 to 1.5203

Further levels in both directions:

• Below: 1.5138, 1.5053, 1.4988, 1.4880 and 1.4818
• Above: 1.5203, 1.5309, 1.5392 and 1.5461

OANDA’s Open Positions Ratios

The GBP/USD ratio is again pointing to activity after Tuesday’s lull. The current movement is towards short positions. This is not reflected in the present movement of the pair, as the pound has posted gains against the US dollar. If the ratio continues with this movement, it could signify an expectation for the dollar to bounce back and improve at the expense of the pound.

After dropping into 1.49 territory last week, the pound has rallied, and is trading above the 1.51 level. However, UK numbers have not impressed the markets, and the new budget has downgraded the growth forecast. This is in sharp contrast to the US, where most releases have been positive, and this has led to more positive market sentiment. In this context, the pound will have a tough time continuing to move higher against the US dollar.

GBP/USD Fundamentals

• 9:30 British Claimant Count Change. Estimate -5.2K. Actual -1.5K
• 9:30 British MPC Meeting Minutes
• 9:30 British Unemployment Rate. Estimate 7.8%. Actual 7.8%
• 9:30 British Average Earnings Index. Estimate 1.5%. Actual 1.2%
• 12:30 British Annual Budget Release
• 14:30 US Crude Oil Inventories. Estimate 1.8M. Actual -1.3M
• 18:00 US FOMC Economic Projections
• 18:00 US FOMC Statement
• 18:00 US Federal Funds Rate. Estimate <0.25% 
• 18:30 US FOMC Press Conference

*Key releases are highlighted in bold

*All release times are GMT

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