GBP/USD – Pound Dips Below 1.22 as US Personal Spending Rebounds

GBP/USD has recorded losses on Monday, as the pair trades at 1.2170 in the North American session. On the release front, British Net Lending to Individuals improved to GBP 4.7 billion, edging above the estimate of GBP 4.6 billion. In the US, Personal Spending posted a gain of 0.5%, matching the forecast. Chicago PMI dipped to 50.6 points, well off the forecast of 54.1 points. On Tuesday, the US will publish ISM Manufacturing PMI, with an estimate of 51.8 points.

Britain’s economy grew in the third quarter, another indication that the UK appears to have escaped significant economic damage in the period subsequent to the Brexit vote in June. The British electorate’s decision in June to leave the European Union sent shock waves across the markets, which remain nervous about Brexit fallout, as Britain and the EU will have to sit down and negotiate an orderly departure. The markets are anxiously awaiting the BoE’s policy meeting on Thursday, as analysts continue to look for clues as to whether the bank will lower rates for the second time in four months. The markets are expecting the benchmark rate to remain unchanged at 0.25%, as higher inflation and generally positive economic numbers have lessened pressure on the BoE to ease monetary policy.

In the US, there was positive news from the consumer front, as Personal Spending rebounded with a 0.5% gain in September, after a flat reading of 0.0% in August. This release comes on the heels of a disappointing consumer spending report on Friday, as UoM Consumer Sentiment fell to 87.2 points in October, below expectations and its lowest level since August 2015. US Advance GDP jumped 2.9 percent in the third quarter, and the rosy number will be great news for Fed policymakers who want to raise rates in December. Currently, a hike is priced in at around 70 percent. The US economy remains strong, buoyed by a labor market that is close to capacity, with unemployment at a healthy 5.0%. Inflation levels, however, remain low and are unlikely to show much improvement in the next few months. Although the Fed would prefer stronger inflation, other economic indicators remain strong enough such that the lack of inflation is unlikely to be the critical factor in the Fed rate decision. The Fed will also hold a policy meeting in early November, but is unlikely to make any rate moves just before the US presidential election.

GBP/USD Fundamentals

Monday (October 31)

• 5:30 British Net Lending to Individuals. Estimate 4.7B. Actual 4.6B
• 5:30 British M4 Money Supply. Estimate +0.6%. Actual -0.4%
• 5:30 British Mortgages Approvals. Estimate 62K. Actual 63K
• 8:30 US Core PCE Price Index. Estimate 0.1%. Actual 0.1%
• 8:30 US Personal Spending. Estimate 0.5%. Actual 0.5%
• 8:30 US Personal Income. Estimate 0.3%. Actual 0.3%
• 9:45 US Chicago PMI. Estimate 54.1. Actual 50.6
• Tentative – US Loan Officer Survey

Tuesday (November 1)

• 5:30 British Manufacturing PMI. Estimate 54.6
• 10:00 US ISM Manufacturing PMI. Estimate 51.8

*All release times are EDT

* Key events are in bold

GBP/USD for Monday, October 31, 2016

GBP/USD October 31 at 11:45 EDT

Open: 1.2205 High: 1.2206 Low: 1.2143 Close: 1.2174

GBP/USD Technical

• GBP/USD was flat in the Asian session. The pair posted losses in European trade but has recovered in the North American session and continues to move upwards
• 1.2120 is providing support
• There is resistance at 1.2272

Further levels in both directions:

• Below: 1.2120, 1.1954 and 1.1844
• Above: 1.2272, 1.2351 and 1.2479
• Current range: 1.2120 to 1.2272

OANDA’s Open Positions Ratio

GBP/USD ratio is showing long positions with a strong majority (64%), indicative of trader bias towards GBP/USD reversing directions and moving higher.

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.