GBP/USD – Pound Slips Despite Improved Public Sector Finances

GBP/USD has reversed directions on Tuesday and posted considerable losses. In the North American session, the pair is trading at 1.2430. On the release front, British Public Sector Net Borrowing and CBI Industrial Expectations both handily beat their estimates. In the US, Existing Home Sales jumped to 5.60 million, well above the forecast of 5.47 million. As well, the Richmond Manufacturing Index improved to 4 points, beating the estimate of 1 point. Wednesday will be much busier, with a host of key releases in the US, highlighted by Core Retail Sales and the FOMC meeting minutes.

There was good news out of the UK, as the public sector net debt narrowed to GBP 4.3 billion in October, beating the estimate of GBP 5.9 billion. This figure was a strong improvement from the September debt of  the GBP 10.1 billion. CBI Industrial Expectations improved to -3 points in November, compared to -18 points a month earlier. The markets had expected a reading of -8 points.

Market focus has shifted to the Autumn Forecast Statement, which serves as a preview to the annual UK budget. This report will be closely watched, as it will detail the government’s forecast for the economy ahead of the Brexit negotiations. Analysts are bracing for a pessimistic report which will point to lower growth, higher inflation and a ballooning deficit. Since the Brexit vote, the economy has managed quite well, consistently putting up numbers which have beaten expectations. However, there are serious concerns that the actual exit from European Union will take a heavy toll on the British economy, and if the Autumn Statement reflects these worries, we could see the pound lose ground.

The US dollar has posted broad gains since Donald Trump’s election victory earlier this month, although the British pound has held its own during this time. With a rate hike in December a near-certainty, sentiment towards the dollar should remain high. However, with a new government taking over the reins, what will happen in early 2017 is a big question mark which could translate into volatility in the markets. Trump’s election promises of more spending and less taxes have been vague and we will have to wait for the new Trump administration to unveil a detailed economic platform. The Federal Reserve is in favor of gradual rate hikes next year, but this assumes that the US economy continues to strengthen. In testimony before a congressional committee last week, Fed chair Janet Yellen acknowledged the uncertainty created by Trump’s victory and said that the Fed might have to adjust its outlook, based on the new president’s economic policies.

GBP/USD Fundamentals

Tuesday (November 22)

• 4:30 British Public Sector Net Borrowing. Estimate 5.9B. Actual 4.3B
• 5;34 British 10-year Bond Auction. Actual 1.38% 
• 6:00 British CBI Industrial Expectations. Estimate -8 points. Actual -3 points
• 10:00 US Existing Home Sales. Estimate 5.43M. Actual 5.60M
• 10:00 US Richmond Manufacturing Index. Estimate 1 point. Actual 4 points

Wednesday (November 23)

• 7:30 British Autumn Forecast Statement
• 8:30 US Core Retail Sales. Estimate 0.6%
• 8:30 US Retail Sales. Estimate 0.7%
• 8:30 US Core Durable Goods Orders. Estimate 0.2%
• 8:30 US Unemployment Claims. Estimate 241K
• 10:00 US New Home Sales. Estimate 591K
• 10:00 US Revised UoM Consumer Sentiment. Estimate 91.6
• 14:00 US FOMC Meeting Minutes

*All release times are EST

* Key events are in bold

GBP/USD for Tuesday, November 22, 2016

GBP/USD November 22 at 9:15 EST

Open: 1.2491 High: 1.2512 Low: 1.2407 Close: 1.2425

GBP/USD Technical

• GBP/USD was flat in the Asian session. The pair posted losses in European trade and continues to lose ground in the North American session
• 1.2351 has weakened in support
• There is resistance at 1.2479

Further levels in both directions:

• Below: 1.2351, 1.2272 and 1.2120
• Above: 1.2479, 1.2620 and 1.2778
• Current range: 1.2351 to 1.2479

OANDA’s Open Positions Ratio

GBP/USD ratio is unchanged in the Tuesday session. Currently, long positions have a majority (58%). 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.