GBP/USD – Pound Slide Continues as BoE Holds Rates after Fed Hike

GBP/USD continues to post gains in the Thursday session. In North American trade, the pair is trading at the 1.24 line. The Bank of England maintained the benchmark rate at 0.25%. British Retail Sales posted a small gain of 0.2%, matching the forecast. In the US, CPI and Core CPI both came in at 0.2%, also matching the estimates. Other key events looked sharp, as unemployment claims dipped to 254 thousand, while the Philly Fed Manufacturing Index surged to 21.5 points, well above expectations.

There were no surprises from the BoE on Thursday. The BoE maintained interest rates at 0.25%, unchanged since August. As well, the asset purchase program remained at 435 billion pounds. The British economy has performed better than the BoE expected since the Brexit vote in June, which resulted in the bank dropping plans to cut rates in October. Instead, the bank adopted a neutral stance for monetary policy. With inflation levels rising, some analysts are predicting that the BoE could actually raise rates in early 2017. However, on Thursday the bank said that with the pound gaining strength since November (especially against the euro), inflation could weaken.

GBP/USD has slumped 2.5% since Wednesday, when the Federal Reserve hiked rates by a quarter point, to 0.50%. Although the rate move was widely expected and priced in by the markets at close to 100%, the currency markets reacted strongly to the momentous event. The rate hike marked the first rise since December 2015 and only the second rate hike since 2008. In its rate statement, the Fed sounded positive about the economy, noting that the “labor market has continued to strengthen and that economic activity has been expanding at a moderate pace since mid-year”. As well, the Fed revised upwards its forecast of US economic growth to 1.9% in 2016 and 2.1% in 2017, slightly higher than the Fed’s September estimate. What’s next for the Fed? In September, Fed officials said they expected two rate hikes in 2017, but the Fed is now projecting three or even four hikes next year. However, projections can change based on economic conditions, and the wild card of Donald Trump could also play a critical role in monetary policy. Trump’s economic platform remains sketchy, apart from declarations that he plans to increase government spending and cut taxes. If Trump’s economic policies lead to higher inflation levels, the Fed may have to step in with larger hikes in order to keep the economy form overheating.

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GBP/USD Fundamentals

Thursday (December 15)

• 4:30 British Retail Sales. Estimate 0.2%. Actual 0.2%
• 7:00 British MPC Official Bank Rate Votes. Estimate 0-0-9. Actual 0-0-9
• 7:00 BoE Monetary Policy Summary
• 7:00 BoE Official Bank Rate. Estimate 0.25%. Actual 0.25%
• 7:00 BoE Asset Purchase Facility. Estimate 435K. Actual 435B
• 7:00 British MPC Asset Purchase Facility Votes. Estimate 0-0-9. Actual 0-0-9
• 8:30 US CPI. Estimate 0.2%. Actual 0.2%
• 8:30 US Core CPI. Estimate 0.2%. Actual 0.2%
• 8:30 US Philly Fed Manufacturing Index. Estimate 9.1. Actual 21.5
• 8:30 US Unemployment Claims. Actual 254K
• 8:30 US Current Account. Estimate -111B. Actual -113B
• 8:30 US Empire State Manufacturing Index. Estimate 3.2. Actual 9.0
• 9:45 US Flash Manufacturing PMI. Estimate 54.2. Actual 54.2
• 10:00 US NAHB Housing Market Index. Estimate 63 points. Actual 70 points
• 10:30 US Natural Gas Storage. Estimate -126B
• 16:00 US TIC Long-Term Purchases

Upcoming Key Events

Friday (December 16)

• 13:30 US Building Permits. Estimate 1.24M 
• 13:30 US Housing Starts. Estimate 1.23M

*All release times are EST

* Key events are in bold

GBP/USD for Thursday, December 15, 2016

GBP/USD December 15 at 11:35 EST

Open: 1.2533 High: 1.2567 Low: 1.2399 Close: 1.2406

GBP/USD Technical

• GBP/USD continues to break through support levels. On Thursday, the pair has showed limited movement in the Asian session. GBP/USD has posted losses in the European and North American sessions
• 1.2351 is providing support
• 1.2471 has switched to resistance following losses by GBP/USD on Thursday

Further levels in both directions:

• Below: 1.2351, 1.2272 and 1.2111
• Above: 1.2471, 1.2620 and 1.2778
• Current range: 1.2351 to 1.2471

OANDA’s Open Positions Ratio

GBP/USD ratio is showing little movement in the Thursday session. Currently, long positions have a majority (57%), 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.