GBP/USD – Pound Dips After Bumpy Brexit Talks

The British pound has posted losses in the Thursday session. In North American trade, the pair is trading at 1.2884, down 0.31% on the day. On the release front, there are no British events on the schedule. In the US, unemployment claims edged up to 236 thousand, just below the forecast of 237 thousand. Personal Spending improved to 0.3%, just shy of the estimate of 0.4%. The news was not as good from the housing sector, as Pending Home Sales posted a sharp decline of 0.8%, well off the forecast of +0.4%. On Friday, the UK releases Manufacturing PMI, with an estimate of 55.1 points. In the US, we’ll get a look at key employment data. Average Hourly Earnings is expected to edge lower to 0.2%, and the markets are braced for Nonfarm Employment Change to drop to 180 thousand.

The US economy looked sharp in the second quarter of 2017, as Preliminary GDP (second estimate) for the second quarter was revised to 3.0%. This figure was a marked improvement from the first estimate of 2.6%. Consumer confidence and spending remain strong and helped contribute to second quarter growth, which posted its strongest gain since the first quarter of 2015. However, solid consumer spending has failed to boost inflation, and wage growth remains weak. The markets will be looking closely at the July wage growth report, which is expected to show a weak gain of 0.2%. The lack of inflation could hamper the Federal Reserve’s plans to raise interest rates, with the likelihood of a rate hike in December standing at just 35%. On the employment front, ADP Nonfarm Payrolls jumped to 237 thousand, marking a 3-month high. The official Nonfarm Payrolls report will be released on Friday, and if this indicator also beats the forecast, it would be a strong indication that the economic momentum has continued into the third quarter.

The Brexit negotiations continue to grind slowly, causing concern in both Brussels and London. A third round of talks ended on Thursday in Brussels. Britain and the EU remain far apart on a range of issues and even the scope of the talks remain in dispute. Britain wants to discuss a future trading relationship with the EU at the same time that points in contention are dealt with, but the Europeans insist on solving the contentious issues first, such as the size of Britain’s bill and the jurisdiction of the European High Court on European citizens living in the UK. With plenty of distrust between the sides, the negotiations could grind to a halt if both sides don’t show greater flexibility, and such a scenario would likely take a toll on the British pound.

GBP/USD Fundamentals

Thursday (August 31)

• 3:25 MPC Member Michael Saunders Speaks
• 7:30 US Challenger Job Cuts. Actual 5.1%
• 8:30 US Unemployment Claims. Estimate 237K. Actual 236K
• 8:30 US Core PCE Price Index. Estimate 0.1%. Actual 0.1%
• 8:30 US Personal Spending. Estimate 0.4%. Actual 0.3%
• 8:30 US Personal Income. Estimate 0.3%. Actual 0.4%
• 9:45 US Chicago PMI. Estimate 58.7. Actual 58.9
• 10:00 US Pending Home Sales. Estimate +0.4%. Actual -0.8%
• 10:30 US Natural Gas Storage. Estimate 33B. Actual 30B

Upcoming Key Events

Friday (September 1)

• 4:30 British Manufacturing PMI. Estimate 55.0
• 8:30 US Average Hourly Earnings. Estimate 0.2%
• 8:30 US Nonfarm Employment Change. Estimate 180K
• 8:30 US Unemployment Rate. Estimate 4.3%
• 10:00 US ISM Manufacturing PMI. Estimate 56.5
• 10:00 US Revised UoM Consumer Sentiment. Estimate 97.4

*All release times are GMT

*Key events are in bold

GBP/USD for Thursday, August 31, 2017

GBP/USD August 31 at 12:00 EDT

Open: 1.2925 High: 1.2930 Low: 1.2852 Close: 1.2884

GBP/USD Technical

• GBP/USD showed little movement in the Asian session. The pair recorded losses in the European session and is steady in North American trade
• 1.2865 was tested earlier in support and is a weak line
• 1.2946 is the next resistance line

Further levels in both directions:

• Below: 1.2865, 1.2767, 1.2639
• Above: 1.2946, 1.3058 and 1.3159
• Current range: 1.2865 to 1.2946

OANDA’s Open Positions Ratio

GBP/USD ratio is unchanged in the Thursday session, as long and short positions remain evenly split. This is indicative of a lack of trader bias as to what direction GBP/USD will take next.

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.