GBP/USD – Limited Gains as BOE Releases Minutes, Federal Reserve Up Next

The pound has edged higher in Wednesday trading, as GBP/USD makes up some lost ground after losing close to a cent on Tuesday. The pair is trading in the mid-1.56 range in the North American session. In the US, today’s highlight is the FOMC policy statement, and the markets will likely react after hearing from the Federal Reserve. In the UK, there were no surprises from the BOE, as the voting pattern for the recent interest and asset purchase decisions were expected. 

The BOE released the minutes of the most recent policy meeting of the MPC, which is responsible for the interest rate and asset purchases (QE) decisions. The voting breakdown of the MPC members, which can be a market-mover, yielded no surprises. The vote on maintaining the interest rate at 0.50% was unanimous, in contrast to the QE decision, which passed by a 6-3 vote. BOE Governor Mervyn King, in his final policy meeting, voted with two other members to increase QE to GBP400 billion, but the majority opted to maintain the current levels  of GBP375 billion. This breakdown was identical to the pattern at the previous meeting, and was expected by the market, so the release of the minutes did not affect GBP/USD.

On Tuesday, stubbornly high inflation numbers were responsible for the pound’s sharp drop. The BOE has already voiced concern that its inflation target of 2% is too low, and the robust inflation figures will only reinforce that concern. Meanwhile, the markets got their first glimpse of US key data, and the results were mixed. Building Permits came in at 0.97 million, just shy of the estimate of 0.98 million. Core CPI rose slightly to 0.2%, matching the forecast. CPI also came in exactly as expected, at 0.1%. The only disappointment was Housing Starts, which remained unchanged at 0.91 million. This was short of the estimate, which stood at 0.95 million.

The markets are keeping a close watch on the US Federal Reserve, as the FOMC releases a highly anticipated policy statement later today. The markets will be particularly interested in what the Fed has to say with regard to its quantitative easing program. Speculation has been growing that the Fed could scale back QE later in the year, and this has had a very strong impact on stocks, commodities and the US dollar. The Federal Reserve has repeatedly stated that it will stick with the current program until it sees improvement in the US economy, especially in the employment market. Currently the Fed purchases $85 billion in assets every month. If the Fed does take action or even hints at a move to tighten QE, we could see some volatility from the US dollar.

G8 summits are often photo-ops with little substance, as confident world leaders step up to the microphones and declare their unwavering commitment to take steps to improve the global economy. However, this year’s G8 meeting in Northern Ireland was more than just smiles and handshakes, as the G8 leaders used the occasion to announce the start of negotiations on a free trade agreement between the European Union and the United States. The summit’s host, British Prime Minister David Cameron, said that he was determined to seize this “once-in-a generation prize”. The stakes are indeed very high – the EU and US produce 50% of the global output, and a third of world trade. The deal would be the largest bilateral trade pact ever, and could add up to $100 billion to the economies of each side. Negotiations will get underway in Washington next month, and if all goes well, a deal could be signed by the end of 2014.

GBP/USD for Wednesday, June 19, 2013

GBP/USD June 19 at 15:10 GMT

GBP/USD 1.5662 H: 1.5677 L: 1.5604

GBP/USD Technical

The pound has edged higher in Wednesday trading, and is trading in the mid-1.56 range. The pair is receiving support from the 1.5557 line. This line appears safe for now. This is followed by support at 1.5432. On the upside, the pair faces resistance at the round number of 1.5700. This line could see some pressure if the pound continues to move higher. This is followed by resistance at 1.580o, which has remained intact since February.

• Current range: 1.5557 to 1.5700

Further levels in both directions:

• Below: 1.5557, 1.5432, 1.5309, 1.5203 and 1.5111
• Above: 1.5700, 1.5800, 1.5800, 1.5869, 1.5916 and 1.60

OANDA’s Open Positions Ratio

GBP/USD ratio has reversed directions, and is currently pointing to movement towards long positions. This is reflected in the movement of the pair, as the pound has posted some gains against the dollar. Short positions continue to retain a solid majority, indicating a strong bias towards the GBP/USD reversing course and  moving in a downward direction.

The pound has made modest gains on Wednesday, after sharp losses on Tuesday. We could see some strong movement from the pair on Wednesday, as the Federal Reserve grabs the spotlight. If there are any changes to QE, the currency markets could react sharply and quickly.

GBP/USD Fundamentals

• 8:30 British MPC Asset Purchase Facility Votes. Estimate 3-0-6. Actual 3-0-6.
• 8:30 British MPC Official Bank Rate Votes. Estimate 0-0-9. Actual 0-0-9.
• 14:30 US Crude Oil Inventories. Estimate 0.5M.
• 18:00 US FOMC Economic Projections.
• 18:00 US FOMC Statement.
• 18:00 US Federal Funds Rate. Estimate <0.25%.
• 18:30 US FOMC Press Conference.
• 20:00 BOE Governor Mervyn King Speaks.

*Key releases are highlighted in bold

*All release times are GMT

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