GBP/USD – Pound Subdued at 1.30, US Durable Reports Disappoint

GBP/USD is showing limited movement on Wednesday, as the pair trades at the 1.30 line in the North American session. On the release front, there are no British indicators on the schedule. BoE Deputy Governor Nemat Shafik delivered remarks at an event in London. In the US, Durable Goods Orders came in at a flat 0.0%, above the forecast of -1.0%. Core Durable Goods Orders declined 0.4%, edging above the estimate of a 0.5% decline. As well, Federal Reserve chair Janet Yellen will testify before the House Committee on Financial Services. On Thursday, the US will release Final GDP and unemployment claims.

The BoE broadly hinted in September that it would reduce rates again in November, and the markets have been monitoring statements from BoE officials, looking for further clues about monetary policy. On Wednesday, BoE Deputy Governor Nemat Shafik said that further rate cuts would be required “at some point” in order to soften the effects of an economic slowdown. Although post-Brexit numbers have been better than predicted, Shafik said that Brexit would lower longer-term growth, and that she would vote in favor of further rate cuts. Her remarks were move dovish than MPC member Kristin Forbes, who stated last week that she was “not yet convinced” that additional rate cuts were needed. Is there a split amongst BOE policymakers regarding monetary policy? If the bank sends mixed messages about the November rate decision, market players will be confused and the pound could show some volatility.

In the UK, CBI Realized Sales, a gauge of early retail sales for the month, indicated that retail sales dropped sharply in September. This surprised the markets, which had expected a strong gain. This has led to some volatility from the pound on Tuesday, as GBP/USD lost ground after the release but has since recovered. Although most third quarter numbers out of Britain have been better than expected, the markets remain jittery after Brexit, and any negative news could sour sentiment and weaken the pound. We’ll get a look at the GfK consumer confidence survey on Thursday, which has shown continuing pessimism from UK consumers, although there has been some improvement in recent readings.

US consumer confidence numbers continue to impress the markets. The CB Consumer Confidence jumped to 104.1 points in September, much higher than the forecast of 98.6 points. This excellent release improved upon a strong August report of 101.1 points. Stronger consumer confidence often translates into increased spending by consumers, which is vital for economic growth. If consumer spending numbers also move higher, the likelihood of a December hike will likely increase.

Federal Reserve chair Janet Yellen will testify before a Congressional committee on Thursday, and her remarks could shed more light on the Fed’s plans regarding a rate hike. Last week, the Fed held interest rates at 0.25%. The Fed policy statement was generally upbeat and broadly hinted at a December rate hike. However, the markets can be forgiven for remaining somewhat skeptical, as the Fed has previously talked about a strong US economy and failed to follow up with a rate hike. Currently, a rate hike is priced in at 44 percent, but plenty can happen before the December policy meeting (the Fed is unlikely to make a move in November, just ahead of the US presidential election). The Fed has consistently stated that the next rate hike will be data-dependent, which means that stronger economic numbers, especially on the inflation front, will increase the likelihood of a December hike.

GBP/USD Fundamentals

Wednesday (September 28)

• 4:05 BoE Deputy Governor Nemat Shafik Speaks
• 8:30 US Core Durable Goods Orders. Estimate -0.5%. Actual -0.4%
• 8:30 US Durable Goods Orders. Estimate -1.0%. Actual 0.0%
• 10:00 US Fed Chair Janet Yellen Testifies
• 10:10 US FOMC Member James Bullard Speaks
• 10:30 US Crude Oil Inventories. Estimate 2.4M
• 19:15 US FOMC Member Esther George Speaks

Thursday (September 29)

• 8:30 US Final GDP. Estimate 1.3%
• 8:30 US Unemployment Claims. Estimate 260K
• 16:00 US Federal Reserve Chair Janet Yellen Speaks

*All release times are EDT

* Key events are in bold

GBP/USD for Wednesday, September 28, 2016

GBP/USD September 28 at 10:10 EDT

Open: 1.3008 High: 1.3032 Low: 1.2976 Close: 1.2999

GBP/USD Technical

• GBP/USD posted small losses in the Asian session. The pair was choppy in European trade and has posted slight losses in the North American session
• 1.2899 is providing strong support
• 1.3033 is under pressure in resistance. It could break in the North American session

Further levels in both directions:

• Below: 1.2899, 1.2778 and 1.2612
• Above: 1.3033, 1.3142, 1.3219 and 1.3327
• Current range: 1.2899 to 1.3033

OANDA’s Open Positions Ratio

GBP/USD ratio is unchanged in the Wednesday session. Currently, long positions have a strong majority (71%). This is indicative of trader bias towards GBP/USD continuing to move to higher ground.

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.