GBP/USD – Pound Drops to 6-Week Lows, Markets Eyes British Annual Budget

GBP/USD is lower on Tuesday, continuing the downward trend which marked the Monday session. Currently GBP/USD is trading at 1.2170. On the release front, British numbers have started the week on a sour note. British BRC Retail Sales Monitor declined 0.4%, marking a second straight decline. The Halifax HPI report rebounded with a gain of 0.1%, but this missed the estimate of 0.4%. In the US, the trade deficit jumped to $48.5 billion, higher than the estimate of $47.0 billion. On Wednesday, the US releases ADP Nonfarm Employment Change, ahead of the official Nonfarm Payrolls report on Friday.

The pound’s woes continue, as GBP has slipped below the 1.22 line in the Tuesday session. GBP/USD has dropped 3.0% since February 24, as the pound trades at its lowest levels since January 17. As Britain prepares to invoke Article 50 and commence negotiations over its departure from the European Union, there is palpable uncertainty in the markets about the negative ramifications of Brexit. The Service and Manufacturing PMIs in February were weak, which has weighed on the sagging pound. All eyes are on the annual budget release on Wednesday. This event will be carefully monitored by the markets as it could trigger significant movement from GBP/USD.

Donald Trump has been in office for over a month but still continues to create controversy on an almost basis, much to the consternation of the markets. Still, the US dollar remains strong, buoyed by a strong economy and the increasing likelihood of a rate hike at the upcoming Fed policy meeting on March 15. The likelihood of a March hike has jumped to 84%, according to the CME group, compared to 33% just a week ago. Why the huge jump in odds? One reason is that Fed policymakers have sent out strong hints that the Fed is leaning towards raising rates next week. Earlier in the year, the Fed sent out signals Fed sent out signals that it would stay on the sidelines until it had a clearer picture of Trump’s economic agenda, such as an outline of tax reform or fiscal spending plans. That has changed, as the Fed appears poised to move ahead despite the lack of any details about the administration’s economic policy. This week’s job numbers will be critically important, as strong numbers will likely boost the odds of a March move as well as push the greenback to higher levels.

Are Red Flags Appearing in the USD Rally?

Sterling Getting Pounded

GBP/USD Fundamentals

Monday (March 6)

• 19:01 British BRC Retail Sales Monitor. Actual -0.4%

Tuesday (March 7)

• 3:30 British Halifax HPI. Estimate 0.4%. Actual 0.1%
• 8:30 US Trade Balance. Estimate -47.0B. Actual -48.5B
• 10:00 US IBD/TIPP Economic Optimism. Estimate 57.1
• 15:00 US Consumer Credit. Estimate 19.1B

Wednesday (March 8)

• 7:30 British Annual Budget Release
• 8:15 US ADP Nonfarm Employment Change. Estimate 184K

*All release times are GMT

*Key events are in bold

GBP/USD for Tuesday, March 7, 2017

GBP/USD March 7 at 10:50 EST

Open: 1.2239 High: 1.2252 Low: 1.2172 Close: 1.2174

GBP/USD Technical

• GBP/USD was flat in the Asian session and has ticked lower in European trade
• 1.2143 is providing support
• 1.2272 is under pressure in resistance. It could break during the North American session

Further levels in both directions:

• Below: 1.2143, 1.2033 and 1.1943
• Above: 1.2272, 1.2351, 1.2471 and 1.2579
• Current range: 1.2143 to 1.2272

OANDA’s Open Positions Ratio

GBP/USD ratio is unchanged in the Tuesday session. Currently, long positions have a majority (65%), 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.