GBP/USD – Pound Yawns as Range Trade Continues, Fed Minutes Next

The British pound is showing limited movement in the Wednesday session. In the North American session, GBP/USD is trading at 122.70. On the economic front, British Construction PMI rose to 54.2 points, above the forecast of 52.6 points. In the US, today’s highlight is the Federal Reserve minutes from the December meeting. Thursday brings a host of key events. The UK will release Services PMI, while the US will publish ISM Non-Manufacturing PMI and two key employment indicators – ADP Employment Change and Unemployment Claims.

All eyes are on the Federal Reserve, which will release the minutes from the December policy meeting. At that meeting, the Fed finally raised rates for the first time since December 2015. Analysts will be combing through the minutes, looking for clues regarding future monetary policy. The US economy is performing very well, and the markets are hopeful that this continues as Donald Trump takes office. Trump’s economic policies remain sketchy, although he has promised to increase fiscal spending while lowering taxes. If the economy’s positive momentum continues, the Fed could be inclined to raise rates another quarter point in order to prevent the economy from overheating. If the markets remain bullish about further rate hikes, the US dollar could continue to climb in early 2017.

British PMIs, which are key gauges of economic activity, continue to exceed expectations. Construction PMI improved to 54.2 in December, its strongest level since March. This follows a sharp release from British Manufacturing PMI, which rose to 56.1 points. This marked the highest level since June 2014. At the same time, the British pound has taken a tumble, losing 18 percent of its value since the historic June vote. With Britain and the European Union set to discuss the details of the departure early next year, the markets will be nervously waiting for the negotiations to begin. British Prime Minister Theresa May has said she wants to trigger Article 50, the mechanism for leaving the EU, by the end of March. However, with plenty of ill will in Europe towards Britain, it’s questionable whether the exit process will be smooth and orderly, which could mean trouble for the wobbly British pound in the upcoming months.

The spotlight will be on the Federal Reserve on Wednesday, with the release of the minutes from the December policy meeting, when the Fed finally raised rates for the first time since December 2015. Analysts will be combing through the minutes, looking for clues regarding future monetary policy. The US economy is performing very well, and the markets are hopeful that this continues as Donald Trump takes office. Trump’s economic policies remain sketchy, although he has promised to increase fiscal spending while lowering taxes. If the economy’s positive momentum continues in early 2017, the Fed could be inclined to raise rates another quarter point in order to prevent the economy from overheating. A rate hike would likely lead to broad gains for the US dollar.

UK Risks Losing EU Funding

Has Sterling Overreacted to Brexit?

GBP/USD Fundamentals

Wednesday (January 4)

• 4:30 British Construction PMI. Estimate 52.6. Actual 54.2
• 4:30 British Net Lending to Individuals. Estimate 4.9B. Actual 5.1B
• 4:30 British M4 Money Supply. Estimate 1.4%. Actual 0.4%
• 4:30 British Mortgage Approvals. Estimate 69K. Actual 68K
• All Day – US Total Vehicle Sales. Estimate 17.8M
• 14:00 US FOMC Meeting Minutes

Thursday (January 5)

• 4:30 British Services PMI. Estimate 54.8
• 8:15 US ADP Nonfarm Employment Change. Estimate 171K
• 8:30 US Unemployment Claims. Estimate 262K
• 10:00 US ISM Non-Manufacturing PMI. Estimate 56.6

*All release times are EST

* Key events are in bold

GBP/USD for Wednesday, January 4, 2017

GBP/USD January 4 at 10:40 EST

Open: 1.2242 High: 1.2396 Low: 1.2219 Close: 1.2276

GBP/USD Technical

• GBP/USD was flat in the Asian session and posted gains in European trade. GBP/USD is unchanged in the North American session
• 1.2272 is a fluid line. Currently, it is a weak support level
• 1.2351 is the next resistance line

Further levels in both directions:

• Below: 1.2272, 1.2111, 1.1943 and 1.1844
• Above: 1.2351, 1.2471 and 1.2620
• Current range: 1.2272 to 1.2351

OANDA’s Open Positions Ratio

GBP/USD ratio is unchanged in the Wednesday session. Currently, long positions have a strong majority (64%). This is indicative of trader bias towards GBP/USD reversing directions and moving 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.