GBP/USD – Pound Dips Below 1.30 as Markets Eye Further Rate Cuts

The British pound has posted losses on Thursday and dipped below the symbolic 1.30 level. Early in the North American session, GBP/USD is trading at 1.2970, close to 4-week lows. On the release front, British RICS House Balance disappointed with a small gain of 5%. In the US, Unemployment Claims dropped to 266 thousand, beating expectations.

British data in the third quarter, which covers the period immediately the Brexit vote, has not been encouraging. The RICS House Balance report climbed just 5% in July, compared to an estimate of 19%. This marked the smallest gain in house prices in over three years, as the housing market has become another casualty of Britain’s decision to leave the European Union. This release comes on the heels of other weak data. NIESR GDP Estimate, a monthly report which helps predict official (quarterly) GDP releases, dropped to 0.3% in July, down from 0.6% a month earlier. As well, Manufacturing Production, a key indicator, declined 0.3%, marking a second straight contraction. Brexit has shaken the financial markets and spooked investors, and the economic fallout, which is just beginning to be measured, is expected to be significant. The BoE is trying to cushion the negative impact of Brexit, and the bank took dramatic action last week, cutting interest rates and expanding asset purchases in an attempt to stabilize the economy. BoE Governor Mark Carney has shown that he is willing to take decisive monetary action in order to bolster the British economy, and further rates cuts could follow prior to the end of the year. Still, there are real fears that Britain could be headed into a recession, and these concerns will increase if British indicators continue to weaken.

US employment numbers looked strong in July, led by a banner Nonfarm Payrolls report. Now, the markets are focusing on the possibility of a September rate hike by the Federal Reserve. Prior to the payrolls release, a September hike was virtually off the table, especially in light of the soft US GDP report in late July. The Fed has made no secret of the fact that any rate move will be data-dependent, and the stellar job numbers will force the Fed to give serious thought to a move in September. Employment and inflation releases in the next few weeks will be critical factors in determining if the Fed makes a move next month, or waits until December before revisiting the rate question.

GBP/USD Fundamentals

Wednesday (August 10)

• 19:01 British RICS House Price Balance. Estimate 19%. Actual 5%

Thursday (August 11)

• 8:30 US Unemployment Claims. Estimate 272K. Estimate 266K
• 8:30 US Import Prices. Estimate -0.2%. Actual 0.1%
• 10:00 US Mortgage Delinquencies
• 10:30 US Natural Gas Storage. Estimate 24B
• 13:01 US 30-year Bond Auction

*Key releases are highlighted in bold

*All release times are EDT

GBP/USD for Thursday, August 11, 2016

GBP/USD August 11 at 9:40 GMT

Open: 1.3020 High: 1.3028 Low: 1.2933 Close: 1.2967

GBP/USD Technical

• GBP/USD was flat in the Asian session and posted losses in European trade
• There is resistance at 1.3064
• 1.2938 was tested earlier in support and is a weak line. It could break during the North American session

Further levels in both directions:

• Below: 1.2938, 1.2778 and 1.2680
• Above: 1.3064, 1.3142, 1.3219 and 1.3372
• Current range: 1.2938 to 1.3064

OANDA’s Open Positions Ratio

GBP/USD ratio has shown gains in long positions. Currently, long positions command a majority (60%), 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.