GBP/USD – Pound Takes Breather After Busy Week

The British pound is unchanged on Monday, following sharp losses in the Friday session. GBP/USD is currently trading at 1.3230. On the release front, it’s a very quiet start to the week. In the UK, Rightmove HPI disappointed, posting a decline of 0.9%. Later in the day, MPC Member Martin Weale will speak about the implication of Brexit on monetary policy at an event in London. In the US, there are two minor indicators on the schedule, the NAHB Housing Market Index and TIC Long-Term Purchases. On Tuesday, Britain releases CPI and other inflation indicators, while the US will publish Building Permits.

It was a volatile week for the pound, which posted strong movement during most of the week. GBP/USD slipped on Friday, losing close to 200 points. The pound has been having trouble finding its footing and the instability could continue this week as well. Already, economic indicators are pointing to a downturn in the economy since the Brexit referendum vote in late June. Housing prices are slightly lower, while retail footfall dropped in June. On Thursday, the BoE surprised the markets by staying put and not lowering interest rates. The markets had widely expected a quarter point cut from the BoE, which would have marked the first rate cut since July 2009. BoE Mark Carney had strongly hinted at the move when he recently stated that economic conditions had deteriorated and the BoE would need to lower rates this summer. With Carney passing on a move last week, that means there is a strong chance that the BoE will lower rates at its next policy meeting on August 4. Central banks prefer not to reveal their cards, but another balk by Carney next month would hurt the credibility of the BoE, so it’s likely that we will see a move. On Friday, BOE chief economist Andrew Haldane spoke in Wales and said that the central bank needed to act “promptly as well as muscularly” in order to cushion the financial blow from Brexit. This appears to be a call for a comprehensive response, not just a quarter-point rate cut. The pound soared on Thursday after the BoE surprise, gaining 230 points, only to surrender most of those gains on Friday.

On the political front in Britain, there was plenty of drama  last week. Theresa May replaced David Cameron as Prime Minister on Wednesday, as the changing of the guard at 10 Downing took place much more quickly than expected – Cameron was widely expected to hang on as caretaker leader until October. May didn’t waste any time in making key appointments and axing some veteran ministers in the process. She has appointed a minister in charge of the Brexit negotiations with the EU and has appointed Boris Johnson as foreign secretary. Johnson and EU leaders do not enjoy a good relationship, but all will have to roll up their sleeves and get down to the business at hand – commencing negotiations over Britain’s departure and establishing a new trade relationship between the EU and its island neighbor.

The markets had plenty of US consumer indicators to sift through on Friday, and the numbers were a mixed bag. US consumer inflation reports posted small gains of 0.2%, as inflation levels remain soft. There was better news on the consumer spending front, as Core Retail Sales posted a strong gain of 0.7%, beating the estimate. The UoM Consumer Sentiment report dipped below the 90-point level for the first time in three months, and was short of expectations. The Federal Reserve is unlikely to raise rates before September at the earliest, unless there is some strong improvement in economic data, particularly inflation and wage growth, which remain at low levels.

GBP/USD Fundamentals

Monday (July 18)

• 4:15 MPC Member Martin Weale Speaks
• 10:00 US NAHB Housing Market Index. Estimate 60 points
• 16:00 US TIC Long-Term Purchases. Estimate 31.6B

Upcoming Key Releases

Tuesday (July 19)

• 4:30 British CPI. Estimate 0.4%
• 8:30 US Building Permits. Estimate 1.15M

* Key releases are in bold

*All release times are EDT

GBP/USD for Monday, July 18, 2016

GBP/USD July 18 at 6:35 GMT

Open: 1.3229 High: 1.3291 Low: 1.3209 Close: 1.3245

GBP/USD Technical

• GBP/USD was flat in the Asian session. The pair posted gains in European trade but then retracted
• 1.3349 is providing resistance
• 1.3219 is a weak support line. This line was tested earlier and could see further action during the day

Further levels in both directions:

• Below: 1.3219, 1.3142 and 1.3064
• Above: 1.3349, 1.3513 and 1.3675
• Current range: 1.3219 to 1.3349

OANDA’s Open Positions Ratio

GBP/USD ratio is showing slight movement towards long positions. Currently, long positions have a majority (55%), indicative of slight trader bias towards GBP/USD breaking out and moving to higher levels.

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.