GBP/USD – Pound Dips to 4-Month Low, British Services PMI Misses Estimate

The British pound continues to falter session and has edged lower in the Thursday session. In North American trade, GBP/USD is trading at 1.3551, down 0.16% on the day. On the release front, British Services PMI improved to 52.8, but still fell short of the estimate of 53.5 points. Over in the US, unemployment claims edged up to 211 thousand, easily beating the estimate of 225 thousand. In the services sector, ISM Non-Manufacturing PMI dropped for a third straight month, coming in at 56.8 points, above the estimate of 56.1 points. On Friday, the focus is on US employment data, with the release of wage growth, nonfarm payrolls and the unemployment rate.

It has been a dreadful run for the pound, which hasn’t posted a winning daily session since April 24. GBP/USD has declined 4.9% since mid-April and is currently trading at a 4-month low. In addition to a broadly stronger US dollar, the pound has been hampered by weak numbers in the past week. Preliminary GDP for the first quarter missed the forecast with a negligible gain of 0.1%, and Manufacturing and Services PMIs also fell short of their estimates. The soft data has raised doubts whether the Bank of England will raise rates at next week’s rate meeting, with the odds of a hike plunging to 20%, compared to 90% at the beginning of April. Most analysts expect the BoE to delay a rate hike until the second half of the year, with August or November being the most likely months for a rate hike.

The Federal Reserve maintained the benchmark rate at a target of 1.5% to 1.75% on Wednesday. The markets, which were looking for some comments about inflation, were not disappointed. The rate statement was significant, with policymakers noting that “overall inflation has moved closer to 2 percent”. This was more hawkish than the March statement, in which the rate statement said that inflation indicators “have continued to run below 2 percent”. With inflation moving closer to the Fed target of 2 percent, there is a stronger likelihood that the Fed will upgrade its rate projection from three to four hikes in 2018. The odds of a fourth rate hike this year stand at 50%. The Fed rate statement also noted that “market-based measures of inflation compensation remain low”, a reference to soft wage growth, which is at 2.7%, lower than the 3% rate that the Fed would like to see.

The US Dollar is the market’s darling

U.S Dollar’s Deja Vu

GBP/USD Fundamentals

Thursday (May 3)

• 4:30 British Services PMI. Estimate 53.5. Actual 52.8
• 7:30 US Challenger Job Cuts. Actual -1.4%
• 8:30 US Preliminary Nonfarm Productivity. Estimate 0.9%. Actual 0.7%
• 8:30 US Preliminary Unit Labor Costs. Estimate 3.1%. Actual 2.7%
• 8:30 US Trade Balance. Estimate -50.0B. Actual -49.0B
• 8:30 US Unemployment Claims. Estimate 225K. Actual 211K
• 9:45 US Final Services PMI. Estimate 54.4. Actual 54.6
• 10:00 US ISM Non-Manufacturing PMI. Estimate 58.1. Actual 56.8
• 10:00 US Factory Orders. Estimate 1.3%. Actual 1.6%
• 10:30 US Natural Gas Storage. Estimate 47B. Actual 62B

Friday (May 4)

• 8:30 US Average Hourly Earnings. Estimate 0.2%
• 8:30 US Nonfarm Employment Change. Estimate 189K
• 8:30 US Unemployment Rate. Estimate 4.0%

*All release times are DST

*Key events are in bold

GBP/USD for Thursday, May 3, 2018

GBP/USD May 3 at 11:20 DST

Open: 1.3574 High: 1.3629 Low: 1.3546 Close: 1.3551

GBP/USD Technical

GBP/USD edged higher in the Asian session. The pair showed little movement in European trade and has edged lower in the North American session

• 1.3494 is providing support
• 1.3613 is the next resistance line
• Current range: 1.3494 to 1.3613

Further levels in both directions:

• Below: 1.3494, 1.3402 and 1.3301
• Above: 1.3613, 1.3712, 1.3796 and 1.3901

OANDA’s Open Positions Ratio

GBP/USD ratio is almost unchanged in the Thursday session. Currently, long positions have a majority (56%), indicative of trader bias towards GBP/USD reversing directions and moving upwards.

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.