GBP/USD – Pound Higher as US Consumer Confidence Slides

GBP/USD has posted slight gains in the Tuesday session. In North American trade, the pair is trading just above the 1.2570. On the release front, British Net Lending to Individuals dropped to GBP 4.8 billion, well below the forecast of GBP 5.3 billion. In the US, CB Consumer Confidence fell to 111.8, short of the forecast of 112.6. On Wednesday, the UK releases Manufacturing PMI, with an estimate of 55.9. The US will publish the ADP payrolls report and ISM Manufacturing PMI. As well, the Federal Reserve will set the benchmark interest rate and release a rate statement.

President Donald Trump has already butted heads with politicians in France and Germany, but he appears to have a soft spot for Britain, a longstanding ally of the United States. Gone was the bombastic rhetoric, as Trump played the charming host and welcomed Prime Minister Theresa May on Friday, the first foreign leader to meet with the new president. Trump reiterated his support for Britain’s exit from the European Union, saying that “Brexit is going to be a wonderful thing”. In the months ahead, however, May will need more than just effusive words from Donald – what she’s really after is a brand new free trade agreement with the US, in order to counter the Brexit critics who are fearful about Britain’s economy once the country leaves the European Union. Given Trump’s protectionist rhetoric and moves early in his presidency, it will be interesting to see what type of a deal May and Trump are able to reach.

On Friday, US Advance GDP came in at 1.9% for the fourth quarter, short of the forecast of 2.1%. Analysts had predicted that US economic growth would soften in the fourth quarter after an exceptionally strong Q3, which prodded the Fed to raise rates in December, for the first time in a year. Business investment and consumer spending remains solid and should continue into 2017. However, Trump’s protectionist rhetoric and actions, which saw tensions escalate with Mexico last week, could darken the bright picture for the US economy.

Donald Trump has barely warmed the president’s chair in the Oval House, but has already signed a host of controversial executive orders which have been condemned both domestically and abroad. Trump has withdrawn from the Trans-Pacific Partnership and declared he will reopen the NAFTA trade agreement with Canada and Mexico. He has also ordered work to begin on a wall with Mexico and banned immigrants from seven Moslem countries. Trump’s unconventional and disjointed approach to international politics and trade could have major ramifications on global trade and could lead to financial instability in global markets, triggering volatility in the currency markets. Just a few days before being sworn in as president, Trump stated that the US dollar was “too strong”, blaming a weak Chinese currency. Predictably, the greenback lost ground after Trump’s remarks. It’s a safe bet that Trump’s offhand tweets and comments will continue to fuel market movement.

Geopolitical and Trade Risks Dominate Market Moves

Fed Expected to Keep Rates on Hold Awaiting Trump Plan

GBP/USD Fundamentals

Tuesday (January 31)

• 4:30 British Net Lending to Individuals. Estimate 5.3B. Actual 4.8B
• 4:30 British M4 Money Supply. Estimate 0.3%. Actual -0.5%
• 4:30 British Mortgage Approvals. Estimate 69K. Actual 68K
• 5:33 British 10-year Bond Auction. Estimate 1.45%
• 8:30 US Employment Cost Index. Estimate 0.6%. Actual 0.5%
• 9:00 US S&P/CS Composite-20 HPI. Estimate 5.0%. Actual 5.3%
• 9:45 US Chicago PMI. Estimate 55.1. Actual 50.3
• 10:00 US CB Consumer Confidence. Estimate 112.6. Actual 111.8
• 19:01 British BRC Shop Price Index

Upcoming Key Releases

Wednesday (February 1)

• 4:30 British Manufacturing PMI. Estimate 55.9
• 8:15 US ADP Nonfarm Employment Change. Estimate 165K
• 10:00 US ISM Manufacturing PMI. Estimate 55.0
• 14:00 US FOMC Statement
• 14:00 US Federal Funds Rates. Estimate <0.75%

*All release times are GMT

*Key events are in bold

GBP/USD for Tuesday, January 31, 2017

GBP/USD January 31 at 10:50 EST

Open: 1.2499 High: 1.2573 Low: 1.2409 Close: 1.2543

GBP/USD Technical

• GBP/USD was flat in the Asian session. In European trade, the pair posted considerable losses but recovered. The pair has posted strong gains in the North American session
• 1.2471 is providing support level
• 1.2579 is the next resistance line

Further levels in both directions:

• Below: 1.2471, 1.2351 and 1.2272
• Above: 1.2579, 1.2674, 1.2775 and 1.2849
• Current range: 1.2471 to 1.2579

OANDA’s Open Positions Ratio

GBP/USD ratio is unchanged in the Tuesday session. Currently, long positions command a majority (57%), indicative of trader bias towards GBP/USD continuing to climb 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.