GBP/USD – Pound Edges Lower on Soft British GDP

GBP/USD has ticked lower in the Thursday session. In the North American session, the pair is trading at 1.2960. On the release front, British GDP for the first quarter was revised downwards to 0.2%, shy of the forecast of 0.3%. Preliminary Business Investment rebounded in Q1 with a gain of 0.6%, above the forecast of 0.3%. In the US, the sole major release was unemployment claims, which edged up to 234 thousand, better than the forecast of 238 thousand. Friday will be busy, highlighted by US Preliminary GDP for the first quarter, which is expected at 0.9%. The initial GDP release in April posted a gain of 0.7%. As well, the US releases Core Durable Goods Orders and UoM Consumer Sentiment. Leaders of the G-7 countries will meet in Sicily, with the war against terror high on the agenda after the Manchester bombing earlier this week.

Britain is badly shaken after a horrific bombing at a Manchester rock concert left 22 dead and over 120 wounded. The government has indicated that another terror attack is likely, and has raised the terror threat to its highest level. The government has warned that another attack is imminent, and politicians briefly suspended campaigning, with only two weeks until the national election. Prime Minister Theresa May is expected to handily win the election, but further attacks could rattle confidence in the government and shrink May’s lead in the polls.

British Second Estimate GDP was revised to 0.2%, down from 0.3% back in April. Although the dip was certainly not dramatic, it was well short of GDP in Q4, which posted a respectable gain of 0.7%. The soft reading comes at a time when other key indicators are missing their estimates, raising concerns that Brexit is finally taking a toll on the British economy. Consumer spending, a key driver of economic growth, had its worst quarter since 2014, as nervous consumers are holding tighter to their purse strings. The British pound jumped 3.2% in April, but a repeat performance in May is unlikely, given the country’s serious economic and security concerns.

The White House presented President Trump’s 2018 budget proposal to lawmakers in Congress this week, but will it be dead-on-arrival? Trump has promised to slash government spending, and much of the funds for the budget would come from huge cuts to the Medicaid health program and food stamps. The budget proposes slashing more than $600 billion from Medicaid and over $192 billion from food stamps over a decade. Trump has promised to balance the budget within 10 years, claiming this can be achieved through tax cuts and annual growth of 3 percent. However, experts are at odds as to whether the economy can reach and maintain such levels of growth, which is much higher than current economic expansion. The budget proposal is unlikely to remain in its present form for very long on Capitol Hill. Democrats will want nothing to do with it, and Republicans will not want to make drastic cuts to federal programs that will incur the wrath of voters. Still, the Trump administration, which has been in damage-control mode for weeks over the firing of FBI director James Comey, can point to the budget as a step forward in trying to implement Trump’s pro-business agenda.

The US dollar struggles post Fed minutes

Where are the hawks?

GBP/USD Fundamentals

Thursday (May 25)

• 4:30 British Second Estimate GDP. Estimate 0.3%. Actual 0.2%
• 4:30 British Preliminary Business Investment. Estimate 0.3%. Actual 0.6%
• 4:30 British BBA Mortgage Approvals. Estimate 40.8K. Actual 40.8K
• 4:30 British Index of Services. Estimate 0.3%. Actual 0.2%
• 8:30 US Unemployment Claims. Estimate 238K. Actual 234K
• 8:30 US Goods Trade Balance. Estimate -64.7B. Actual -67.6B
• 8:30 US Preliminary Wholesale Inventories. Estimate 0.2%. Actual -0.3%
• 10:00 FOMC Member Lael Brainard Speaks
• 10:30 US Natural Gas Storage. Estimate 72B. Actual 75B

Friday (May 26)

• Day 1 – G7 Meetings
• 8:30 US Core Durable Goods Orders. Estimate 0.4%
• 8:30 US Preliminary GDP. Estimate 0.9%
• 10:00 US Revised UoM Consumer Sentiment. Estimate 97.6

*All release times are EDT

*Key events are in bold

GBP/USD for Thursday, May 25, 2017

GBP/USD May 25 at 12:35 EDT

Open: 1.2975 High: 1.3015 Low: 1.2932 Close: 1.2964

GBP/USD Technical

• GBP/USD posted slight gains in the Asian session but retracted in European trade. The pair has posted is showing little movement in North American trade
• 1.2946 was tested earlier in support and is a weak line
• 1.3058 is the next line of resistance

Further levels in both directions:

• Below: 1.2946, 1.2865, 1.2706 and 1.2571
• Above: 1.3058, 1.3121 and 1.3223
• Current range: 1.2946 to 1.3058

OANDA’s Open Positions Ratio

GBP/USD ratio is showing little change in the Thursday session. Currently, short positions have a majority (60%), indicative of trader bias towards GBP/USD continuing to move to lower 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.