GBP/USD – Pound Falls Below 1.29 on Soft Housing Report

The British pound has recorded slight losses to start off the week. In Monday’s North American session, GBP/USD is trading at 1.2875. On the release front, British Rightmove HPI declined 1.2%. In the US, the Empire State Manufacturing Index dropped 4.2 points, well below expectations. Tuesday will be busy, as the UK releases CPI and other inflation reports. Later in the day, the US publishes CPI and Building Permits.

The week did not start out on a positive note in the UK, as Rightmove HPI came in at -1.2%, marking a second straight decline. This survey points to weaker house prices in England and Wales, as uncertainty over Brexit as resulted in a softer housing market. Third quarter data, which covers the period after the Brexit vote in late June, has not looked strong and continues to raise concerns about the British economy. The BoE took dramatic action earlier in the month, slashing interest rates to 0.25% and expanding the bank’s QE program. There’s no arguing that the BoE means business and has acted decisively, but will this be enough to right the listing ship Britannia? If upcoming data continues to miss expectations, fears of a recession will increase and this could lead to more investors dumping their pounds in favor of the safe-haven US dollar. The wobbly pound has recorded seven losing (daily) sessions in the past eight days, as GBP/USD finds itself at 5-week lows. The pound has dropped 2.5% in August and plunged 14% since the Brexit referendum vote.

US numbers wrapped up the week on a sour note, but the weak pound was unable to take advantage. Core Retail Sales dropped 0.3%, while Retail Sales slipped to a flat 0.0%. There was no relief from PPI readings, which measure wholesale prices. PPI came in at -0.4% and Core PPI declined 0.3%. All four releases missed expectations and were lower than their previous readings. UoM Consumer Sentiment improved to 90.4 points, but this fell short of expectations. The soft PPI readings point to ongoing low inflation levels, well below the Federal Reserve’s target of about 2.0%. The Fed next meets in September to decide whether to raise interest rates. A soft GDP report last month had dampened expectations about a rate hike before 2017, but sharp employment numbers, led by a stellar NFP report, raised the odds of a September hike. However, Friday’s soft numbers have again dampened enthusiasm about a rate hike in September, and in all likelihood, the Fed will stay on the sidelines until December or even later.

GBP/USD Fundamentals

Sunday (August 14)

• 19:01 British Rightmove HPI. Actual -1.2%

Monday (August 15)

• 8:30 US Empire State Manufacturing Index. Estimate 2.1. Actual -4.2
• 10:00 US NAHB Housing Market Index. Estimate 60. Actual 60
• 16:00 US TIC Long-Term Purchases

Tuesday (August 16)

• 4:30 British CPI. Estimate 0.5%
• 8:30 US Building Permits. Estimate 1.16M
• 8:30 US CPI. Estimate 0.0%
• 8:30 US Core CPI. Estimate 0.2%

*Key releases are highlighted in bold

*All release times are EDT

GBP/USD for Monday, August 15, 2016

GBP/USD August 15 at 9:50 GMT

Open: 1.2908 High: 1.2945 Low: 1.2865 Close: 1.2870

GBP/USD Technical

• GBP/USD showed little movement in the Asian session. The pair posted slight losses in the European and early in North American trade
• 1.2778 is a strong support level
• There is resistance at 1.2938

Further levels in both directions:

• Below: 1.2778, 1.2680 and 1.2525
• Above: 1.2938, 1.3064, 1.3142 and 1.3219
• Current range: 1.2778 to 1.2938

OANDA’s Open Positions Ratio

GBP/USD ratio is showing little movement on Monday, consistent with the lack of movement from GBP/USD. Currently, long positions command a majority (64%), indicative of trader bias towards GBP/USD reversing directions and moving to higher ground.

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.