GBP/USD – Pound Halts Slide, Markets Eye US Durables

The pound has lost ground on Wednesday, as GBP/USD is trading at 1.4840 in the European session. In economic news, British Final GDP posted a gain of 0.5% in the third quarter, within expectations. The British current account deficit widened, but still beat expectations. Over in the US, today’s key event is Core Durable Goods Orders. The markets are expecting a weak gain of 0.1% in the November report.

There were no surprises from British GDP in the third quarter. Final GDP posted a gain of 0.4%, close to the estimate of 0.5%. This follows the Second Estimate GDP, which came in at 0.5%. Meanwhile, the UK current account deficit widened in the third quarter to GBP 17.5 billion, up from GBP 16.8 billion. Although this figure was better than the estimate of GBP 22.2 billion, the pound remains vulnerable to a persistently weak current account position. There was other bad deficit news earlier in the week, as Public Sector Net Borrowing ballooned to GBP 13.6 billion deficit in November, up from GBP 7.5 billion a month earlier.

The British pound has been thoroughly outmatched by the US dollar, as GBP/USD has lost some 600 points since the start of November. The pair is currently trading close to its lowest levels since April, and has posted seven straight daily losses. The UK economy has plenty of troubles, highlighted by anemic inflation levels. CPI, the prime gauge of consumer inflation, has recorded a gain above 0.1% only once in 2015. There was no relief from recent employment numbers, as Claimant Count Change rose unexpectedly to 3.9 thousand in November, 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 economy continues to improve, as GDP expanded by 2.0%, above the forecast of 1.9%. The main catalyst for the solid reading was consumer spending, as confidence about the economy remains high, as the US consumer has shown greater willingness to open the purse strings. Falling gas prices have helped, as consumers have more disposable income available. There was more good news from the manufacturing sector, which has been one area of weakness in the economy, as the Richmond Manufacturing Index jumped to a 5-month high, climbing to 6 points. The estimate stood at -1 point. However, Existing Home Sales dropped sharply, falling to 4.76 million, its worst showing since April 2014.

After months of standing on the sidelines, the US Federal Reserve finally pressed the rate trigger, raising interest rates by 0.25 percent, the first rate hike 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 Fed move has given the US economy a critical vote of confidence, and this will be duly noted by the global markets. As well, this move is expected to be the first in a series of incremental rate hikes over the course of 2016, and higher interest rates means that the US dollar will become even more attractive to investors, at the expense of other currencies, such as the pound.

GBP/USD Fundamentals

Wednesday (Dec. 23)

• 00:50 US Personal Spending. Estimate 0.3%. Actual 0.3%
• 9:30 British Current Account. Estimate -21.3B. Account 17.5B
• 9:30 British Final GDP. Estimate 0.5%. Actual 0.4%
• 9:30 British Index of Services. Estimate 0.5%. Actual 0.6%
• 9:30 British Revised Business Investment. Estimate 2.2%. Actual 2.2%
• 13:30 US Core Durable Goods Orders. Estimate 0.1%
• 13:30 US Core PCE Price Index. Estimate 0.1%
• 13:30 US Durable Goods Orders. Estimate -0.6%
• 13:30 US Personal Income. Estimate 0.2%
• 15:00 US New Home Sales. Estimate 507K
• 15:00 US Revised UoM Consumer Sentiment. Estimate 92.1 points
• 15:00 US Revised UoM Inflation Expectations
• 15:30 US Crude Oil Inventories. Estimate 1.4M

Thursday (Dec. 24)

Upcoming Key Events

13:30 US Unemployment Claims. Estimate 270K

*Key releases are highlighted in bold

*All release times are GMT

GBP/USD for Wednesday, December 23, 2015

GBP/USD December 23 at 10:40 GMT

GBP/USD 1.4871 H: 1.4873 L: 1.4816

GBP/USD Technical

• GBP/USD has posted gains in the Asian and European sessions.
• 1.4813 is weak support line.
• There is support at 1.4952
• 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 Wednesday, showing a strong majority of long positions (63%). This is indicative of trader bias towards the pound continuing to 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.