GBP/USD – Wobbly Pound Nears 1.48, US GDP Meets Expectations

The pound has lost ground on Tuesday, as GBP/USD is trading at 1.4840 in the European session. In economic news, the UK public sector deficit surged to GBP 13.6 billion, much higher than expected. In the US, Final GDP posted a gain of 2.0%, which was within expectations. The UK will release Current Account on Wednesday, and the markets are braced for a sharp rise in the current account deficit, with an estimate of 21.3 billion pounds.

Down, Down, Down Goes the Pound! The British currency has been no match for the mighty greenback, having lost some 600 points since the start of November, as GBP/USD trades at its lowest levels since April. Low inflation levels continue to hobble the UK economy; CPI, the prime gauge of consumer inflation, has posted a gain of over 0.1% just once in 2015. There was no relief from employment numbers, as Claimant Count Change rose unexpectedly to 3.9 thousand, much higher than the estimate of 0.9 thousand. Add to this unhealthy mix the Fed rate hike which has supported the US dollar, and the grim result was the pound’s worst weekly slide since early November.

The US Federal Reserve took the plunge after months of standing on the sidelines, and raised interest rates by 0.25 percent last week, the first upward move since June 2006. The Fed dropped a broad hint in its October policy meeting about a rate hike before the end of 2015, and predictably, investors and traders were busy trying to guess whether the Fed would indeed press the rate trigger. To the credit of Fed chief Janet Yellen and her colleagues, the Fed put into place a carefully-crafted strategy, sending a steady of stream of signals that it was intending to tighten monetary policy, if economic conditions remained positive. This gave the markets ample time to price in a rate hike, and currency market volatility was not excessive after the US rate hike, the first in almost 10 years. Although a hike of 0.25 percent is expected to have limited economic impact, the psychological aspect of the rate move cannot be overemphasized, as the Fed has given the US economy a critical vote of confidence. As well, this move is expected to be the first in a series of incremental rate hikes over the course of 2016.

GBP/USD Fundamentals

Tuesday (Dec. 22)

• 00:05 British GfK Consumer Confidence. Estimate 2 points. Actual 1 point
• 9:30 British Public Sector Net Borrowing. Estimate 11.9B. Actual 13.6B
• 13:30 US Final GDP. Estimate 1.9%. Actual 2.0%
• 13:30 US Final GDP Price Index. Estimate 1.3%. Actual 1.3%
• 14:00 US HPI. Estimate 0.4%. Actual 0.5%
• 14:00 Belgian NBB Business Climate. Estimate -4.0 points
• 15:00 US Existing Home Sales. Estimate 5.32M
• 15:00 US Richmond Manufacturing Index. Estimate -1 point

*Key releases are highlighted in bold

*All release times are GMT

GBP/USD for Tuesday, December 22, 2015

GBP/USD December 22 at 14:30 GMT

GBP/USD 1.4841 H: 1.4908 L: 1.4826

GBP/USD Technical

• GBP/USD showed limited movement in the Asian and European sessions. The pair has posted losses in North American trade.
• 1.4813 is under pressure in support. It could be tested in the North American session.
• 1.4952 is a weak resistance line.
• Current range: 1.4813 to 1.4952

Further levels in both directions:

• Below: 1.4813, 1.4695 and 1.4601
• Above: 1.4952, 1.5026 and 1.5153

OANDA’s Open Positions Ratio

GBP/USD ratio is unchanged on Tuesday, showing a strong majority of long positions (64%). This is indicative of trader bias towards the pound reversing directions and moving higher.

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.