GBP/USD – Pound Jumps as UK Retail Sales Sparkles

The British pound has posted sharp gains on Thursday, as GBP/USD trades at 1.3140. On the release front, British Retail Sales jumped 1.4%, well above expectations. There was more positive news in the US, as the Philly Fed Manufacturing Index improved to 2.0 points, while Unemployment Claims dipped to 262 thousand. Both indicators beat their estimates.

Crisis? What crisis? There has been a lot of concern that “hard” UK data in the third quarter would point to a sputtering British economy due to Brexit, and this sentiment has contributed to the recent weakness in the pound. On Monday, GBP/USD dropped below the 1.29 line for the first time since mid-July. However, July releases have looked sharp this week, and the pound has rebounded, pushing above the 1.31 level. The pound gained ground on Thursday, as Retail Sales jumped 1.4%, crushing the estimate of 0.1%. This followed excellent employment numbers, as unemployment rolls shrunk by 8.6 thousand, compared to the estimate of a 5.2 thousand gain. Wage growth was solid with a 2.4% gain, just short of the forecast of 2.5%. On Tuesday, the pound jumped after solid inflation numbers. CPI, the primary gauge of consumer inflation, posted a gain of 0.6%, its best showing since November 2014. PPI Input and RPI also improved in July and beat their estimates. If the good news continues, the government may be able to avoid adopting stimulus measures in the fall budget. The BoE has already done its share, cutting interest rates to an all-time low of 0.25% and expanding its asset-purchase program.

Those market players confused about Federal Reserve monetary policy should take heart, as apparently the lack of clarity extends to Fed policymakers as well. The Fed minutes from the July meeting indicated that FOMC members are divided on the timing of a rate hike – some want to raise levels soon, as the US labor market approaches full employment, while others expressed concern about making a move with inflation levels well below the target of 2%. This debate will need to be resolved one way or another, as the Fed must make a rate decision next month. Clearly, policymakers will be swayed by economic data, particularly employment and inflation numbers. The news remains bleak on the latter front, as underscored by July’s consumer inflation reports. CPI posted a weak reading of 0.0%, its worst showing in five months. Core CPI dropped to 0.1%, shy of the estimate of 0.2%. Recent data is pointing in all directions, which explains why the Fed is divided over the timing of a rate hike. After a soft GDP report in late July, nonfarm payrolls was stellar. However, this was followed by weak retail sales and CPI numbers. Bottom line? A September hike is virtually off the table, while the odds of a December hike are pegged at 50/50.

GBP/USD Fundamentals

Thursday (August 18)

• 4:30 British Retail Sales. Estimate 0.1%. Actual 1.4%
• 8:30 US Philly Fed Manufacturing Index. Estimate 1.4. Actual 2.0
• 8:30 US Unemployment Claims. Estimate 269K. Actual 262K
• 10:00 US CB Leading Index. Estimate 0.3%
• 10:05 FOMC Member William Dudley Speaks
• 10:30 US Natural Gas Storage. Estimate 26B

*Key releases are highlighted in bold

*All release times are EDT

GBP/USD for Thursday, August 18, 2016

GBP/USD August 18 at 9:30 GMT

Open: 1.3044 High: 1.3172 Low: 1.3039 Close: 1.3144

GBP/USD Technical

• GBP/USD was flat in the Asian session. The pair has posted sharp gains in European trade and is unchanged in the North American session
• There is resistance at 1.3219
• 1.3142 has switched to a support role following sharp gains by GBP/USD. This line remains fluid and could see further action in the North American session

Further levels in both directions:

• Below: 1.3142, 1.3064 and 1.2938
• Above: 1.3219, 1.3327 and 1.3480
• Current range: 1.3142 to 1.3219

OANDA’s Open Positions Ratio

GBP/USD ratio is almost unchanged on Thursday. Currently, long positions have a majority (58%), indicative of trader bias towards GBP/USD continuing to move upwards.

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.