GBP/USD – British Pound Under Pressure over Brexit Spat

The British pound has inched lower in the Thursday session. In North American trade, GBP/USD is trading at 1.3745, down 0.11% on the day. In economic news, British Manufacturing PMI ticked lower to 55.2, just above the estimate of 55.1 points. In the US, Personal Spending slowed to 0.2%, matching the forecast. Unemployment claims dropped to an impressive 210 thousand, well below the estimate of 222 thousand. Next up, Fed chair Jerome Powell testifies before the Senate Banking Committee. On Friday, the US publishes UoM Consumer Sentiment. In the UK, Brexit will be in focus, as Prime Minister May speaks about Britain’s departure from the EU. As well, Britain releases Construction PMI and Mark Carney will address a conference in Edinburgh.

Are the Brexit talks about to hit the rocks? The pound took a dip on Wednesday, after the EU published a draft of the legal framework of the Brexit agreement. The May government responded by saying it could not accept the draft. Two items in particular have raised the ire of London. First, the proposal that EU would keep Northern Ireland in the bloc’s customs union, which could mean a border between Northern Ireland and the UK. Second, that the European Court of Justice (ECJ) would have the final say in any disputes over the Brexit agreement. May wasted no time responding to the EU proposal, saying that any type of border between the UK and Northern Ireland would threaten the constitutional integrity of the United Kingdom. May is unlikely to accept a role for the ECJ after Brexit, as this would be seen as undermining British sovereignty. Meanwhile, the Europeans dismissed May’s proposal that a final trade deal would allow some divergence with EU regulations in certain industries, but the Europeans have dismissed this as ‘cherry picking’, which they say is a non-starter. May will lay out her post-Brexit vision of relations with the EU in a speech on Friday and if the Europeans pour cold water on her plan, the pound could continue to lose ground.

Jerome Powell will be on center stage on Thursday, as he testifies before the Senate Banking Committee. Powell addressed the House Finance Committee on Tuesday, and his remarks were decidedly hawkish. Fed chair said that the current policy of gradual rate increases would continue. He added that the economy was strong and that he expected inflation to move up to the Fed target of 2 percent. Importantly, Powell did not address the question of an acceleration of rate hikes, but his hawkish stance has increased the likelihood that the Fed will increase it projection from three to four rate hikes this year. Any hints that Fed will quicken its pace of rate hikes would be bullish for the US dollar.

GBP/USD Fundamentals

Thursday (March 1)

• 2:00 British Nationwide HPI. Estimate +0.2%. Actual -0.3%
• 4:30 British Manufacturing PMI. Estimate 55.1. Actual 55.2
• 4:30 British Net Lending to Individuals. Estimate 5.4B. Actual 4.7B
• 4:30 British Mortgage Approvals. Estimate 62K. Actual 67K
• 4:30 British M4 Money Supply. Estimate 0.4%. Actual 1.5%
• 8:30 US Core PCE Price Index. Estimate 0.3%. Actual 0.3%
• 8:30 US Personal Spending. Estimate 0.2%. Actual 0.2%
• 8:30 US Unemployment Claims. Estimate 226K. Actual 210K
• 8:30 US Personal Income. Estimate 0.3%. Actual 0.4%
• 9:45 US Final Manufacturing PMI. Estimate 55.9
• 10:00 US Fed Chair Powell Testifies
• 10:00 US ISM Manufacturing PMI. Estimate 58.7. Actual 55.3
• 10:00 US Construction Spending. Estimate 0.3%
• 10:00 US ISM Manufacturing Prices. Estimate 70.5
• 10:30 US Natural Gas Storage. Estimate -71B
• All Day – US Total Vehicle Sales. Estimate 17.2M

Friday (March 2)

• Tentative – Prime Minister May Speaks
• 4:30 British Construction PMI. Estimate 50.5
• BoE Governor Carney Speaks
• 10:00 US Revised UoM Consumer Sentiment. Estimate 99.2

*All release times are GMT

*Key events are in bold

GBP/USD for Thursday, March 1, 2018

GBP/USD March 1 at 10:20 EDT

Open: 1.3760 High: 1.3779 Low: 1.3727 Close: 1.3744

GBP/USD Technical

GBP/USD was flat in the Asian session and posted small gains in European trade. In the North American session, the pair has reversed directions and posted considerable losses

• 1.3744 is under strong pressure in support
• 1.3809 is the next resistance line

Current range: 1.3744 to 1.3809

Further levels in both directions:

• Below: 1.3744, 1.3613  and 1.3480
• Above: 1.3809, 1.3901, 1.4010 and 1.4128

OANDA’s Open Positions Ratio

In the Thursday session, GBP/USD ratio is almost evenly spit between short and long positions. This is indicative of a lack of trader bias as to what direction the pair 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.