GBP/USD – Pound Continues to Drift, US Final GDP Beats Estimate

GBP/USD continues to have a quiet week, as the pair trades at the 1.30 line in Thursday’s North American session. On the release front, it’s a data-heavy day. British Net Lending to Individuals improved to GBP 4.5 billion, beating the estimate of GBP 4.0 billion. In the US, Final GDP gained 1.4%, edging above the forecast of 1.3%. Unemployment Claims edged up to 254 thousand, beating the forecast of 260 thousand. Later in the day, the US releases Pending Home Sales. On Friday, the UK releases Current Account and Final GDP. The US will publish the UoM Consumer Sentiment report.

US numbers were better than expected on Thursday, but the dollar failed to gain ground on the British pound. The economy expanded 1.4% in the second quarter, revised from the preliminary estimate of 1.1%. Consumer spending has been strong, making up for sluggish business investment and weaker demand for US exports. The US consumer is optimistic about the economy, as underscored by recent CB consumer confidence surveys, which have been above the 100-level for two months running. On the labor front, unemployment claims came in at 254 thousand, marking the eighth straight week that jobless claims have come in below the forecast. On Friday, the important UoM Consumer Sentiment will be released, with the markets expecting a strong reading of 90.1 points.

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 those of 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? Mixed messages regarding the November rate decision could confuse the market players and result in volatility from the pound.

With the Federal Reserve staying on the sidelines in September and the November meeting taking place just before the US election, the markets have circled December as the next date for a possible rate hike. Last week’s 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 48 percent, but plenty can happen before the December policy meeting. The Fed has been sending out mixed messages about a rate hike, and this was underscored in the September decision, in which three FOMC members dissented and voted for an immediate hike. This lack of clarity has been disconcerting to the markets, which are always allergic to uncertainty. The markets haven’t forgotten that last December, the Fed projected a series of hikes in 2016, and has yet to deliver even one hike this year. As we approach December, the Fed will need to send out a more uniform message in order to restore its credibility with the markets.

GBP/USD Fundamentals

Thursday (September 29)

• 4:30 British Net Lending to Individuals. Estimate 4.0B. Actual 4.5B
• 4:30 British M4 Money Supply. Estimate 0.8%. Actual 0.9%
• 4:30 British Mortgage Approvals. Estimate 60K. Actual 60K
• 8:30 US Final GDP. Estimate 1.3%. Actual 1.4%
• 8:30 US Unemployment Claims. Estimate 260K. Actual 254K
• 8:30 US Final GDP Price Index. Estimate 2.3%. Actual 2.3%
• 8:30 US Goods Trade Balance. Estimate -62.6B. Actual -58.4B
• 10:00 US FOMC Member Jerome Powell Speaks
• 10:00 US Pending Home Sales. Estimate -0.1%
• 10:30 US Natural Gas Storage. Estimate 57B
• 16:00 US Federal Chair Janet Yellen Speaks

Friday (September 30)

• 4:30 British Current Account. Estimate -30.5B
• 4:30 British Final GDP. Estimate 0.6%
• 10:00 US Revised UoM Consumer Sentiment. Estimate 90.1

*All release times are EDT

* Key events are in bold

GBP/USD for Thursday, September 29, 2016

GBP/USD September 29 at 10:00 EDT

Open: 1.3035 High: 1.3054 Low: 1.2982 Close: 1.2996

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 a weak resistance line. It could see further action 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 Thursday session. Currently, long positions have a strong majority (72%). This is indicative of trader bias towards GBP/USD reversing directions and moving 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.