GBP/USD – British pound dips despite rebound in manufacturing growth

GBP/USD has edged lower in the Tuesday session. In North American trade, the pair is trading at 1.2809, down 0.33% on the day. On the release front, Bank of England Governor Mark Carney testified about inflation before Parliament’s Treasury Committee. British CBI Industrial Order Expectations rebounded with a reading of 10, after two straight declines. In the U.S. construction numbers improved in October. Building Permits improved to 1.26 million and Housing Permits climbed to 1.23 million. On Wednesday, the U.S. releases durable goods orders, unemployment claims and consumer confidence. The U.K. will release Public Sector Net Borrowing.

The latest turmoil surrounding the Brexit negotiations have unnerved the business sector, which is deeply alarmed at the uncertainty facing the British economy after the U.K. leaves the European Union. The U.K and the EU reached a tentative withdrawal agreement last week, but there are deep divisions within the Conservative party over the deal. With Labor smelling blood and vowing to vote down any agreement brought to parliament, pundits are wondering if any deal Prime Minister May tries to pass in parliament will be dead on arrival. If so, the nightmarish scenario of a no-deal departure could materialize, which would be disastrous for the British economy. On Monday, John Allen, president of the Confederation of British Industry, bluntly warned that a no-deal Brexit would be a “wrecking ball for the economy”. Prime Minister May is fighting for her political life, and the pound will likely remain under pressure, unless May can somehow push the Brexit agreement through a skeptical parliament.

The economic forecast calls for further rates hikes by the Federal Reserve in 2019, but the pace could be slower than anticipated just a few weeks ago. The U.S economy continues to fire on all cylinders, with unemployment at historically low levels and the $1.5 trillion tax cut package boosting economic growth. However, there are concerns that economic growth could soften in 2019. The U.S-China trade war is expected to take a bite out of U.S growth, and the stimulus from the Trump tax cut will fade over time. GDP has been slowing on an annualized basis – from a sizzling 4.2% in the first quarter, to 3.5% in Q2, with Q3 expected at just 2.7%. The downward trend is expected to continue into 2019, with a growth forecast of 2.0% to 2.5%. If these forecasts materialize, the Fed could decide to raise rates more slowly next year. Many analysts had expected a hike of 25 basis points each quarter, but that could be revised lower to three rates next year. A December hike stands at 70 percent, down from 75% just one week ago. This has made the U.S dollar less attractive to investors and boosted other major currencies.

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Price action is swirling around this week’s key drivers. Dovish Fed, Brexit and Trade War

GBP/USD Fundamentals

Tuesday (November 20)

• 5:00 British Inflation Report Hearings
• 6:00 British CBI Industrial Order Expectations. Estimate -6. Actual 10
• 8:30 US Building Permits. Estimate 1.26M. Actual 1.26M
• 8:30 US Housing Starts. Estimate 1.23M. Actual 1.23M

Wednesday (November 21)

• 4:30 British Public Sector Net Borrowing. Estimate 5.6B
• 8:30 US Core Durable Goods Orders. Estimate 0.4%
• 8:30 US Durable Goods Orders. Estimate -2.2%
• 8:30 US Unemployment Claims. Estimate 215K
• 10:00 US Revised UoM Consumer Sentiment. Estimate 98.4

*All release times are EST

*Key events are in bold

GBP/USD for Tuesday, November 20, 2018

GBP/USD November 20 at 11:15 EST

Open: 1.2852 High: 1.2884 Low: 1.2814 Close: 1.2822

GBP/USD Technical

GBP/USD was flat in the Asian session. In European trade, the pair posted gains but then retracted. GBP/USD has posted slight losses in North American trade

• 1.2812 remains a weak support line
• 1.2915 is the next resistance line
• Current range: 1.2812 to 1.2915

Further levels in both directions:

• Below: 1.2812, 1.2706, 1.2589 and 1.2488
• Above: 1.2915, 1.3048 and 1.3173

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