GBP/USD – Pound Gains Continue as UK Manufacturing Production Beats Estimate

The British pound has posted gains in the Tuesday session. In North American trade, GBP/USD is trading at 1.3194, up 0.56% on the day. On the release front, British Manufacturing Production gained 0.4%, above the forecast of 0.2%. The UK trade deficit jumped to GBP 14.2 billion, much higher than the forecast of GBP 11.4 billion. The NIESR GDP Estimate remained unchanged at 0.4%. In the US, there are no major events on the schedule. We’ll hear from FOMC members Neel Kashkari and Robert Kaplan. On Wednesday, the US releases JOLTS Job Openings and the Federal Reserve releases the minutes of the September policy meeting.

Last week was disappointing for the pound which declined 2.4 percent. Weak PMI reports and concern about Theresa May holding onto her job as Prime Minister pushed the pound lower. However, the currency has rebounded this week, gaining 1.0 percent. On Tuesday, the pound received a boost as Manufacturing Production gained 0.4% in August, its second best gain in 2017. As well, the NIESR GDP Estimate for third quarter came in at 0.4%, a notch better than its gain of 0.3% in the second quarter. Despite pessimistic forecasts from the Bank of England, and some analysts, the British economy has weathered the Brexit storm and remains in good shape. However, the Brexit talks have not gone well, and a scheduled negotiation session on Tuesday was cancelled. The Department for Exiting the European Union continues to put on a brave face and insists that the talks have made progress, but European negotiators have sounded less enthusiastic. If significant progress is not made by the end of the year, there will be further pressure on May to take Britain out of the EU without a deal.

The Federal Reserve stayed on the sidelines at its September policy meeting, but the markets are clearly expecting one final rate hike in December. According to CME FedWatch, the odds of a December rate hike are currently at 86%, compared to just 31% a month ago. Why the huge turnaround? A strong US economy has helped raise the odds, but the primary reason for the huge shift in market sentiment can be attributed to the Fed policymakers that have come out in support of a rate hike, notably Fed Chair Janet Yellen. The lack of inflation remains the most significant impediment to raising rates, but Yellen and other FOMC members have insisted that strong economic conditions will lead to higher inflation levels. Even if inflation does not move higher before 2018, the Fed now appears ready to press the rate trigger.

GBP/USD Fundamentals

Monday (October 9)

• 19:01 British BRC Retail Monitor. Actual 1.9%

Tuesday (October 10)

• 4:30 British Manufacturing Production. Estimate 0.3%. Actual 0.5%
• 4:30 British Goods Trade Balance. Estimate -11.4B. Actual -14.2B
• 4:30 British Construction Output. Estimate 0.0%. Actual 0.6%
• 4:30 British Industrial Production. Estimate 0.2%. Actual 0.2%
• 6:00 US NFIB Small Business Index. Estimate 105.1. Actual 103.0
• 8:00 British NIESR GDP Estimate. Actual 0.4%
• 10:00 US FOMC Member Neel Kashkari Speaks
• 10:00 US IBD/TIPP Economic Optimism. Estimate 54.2. Actual 50.3
• 19:50 US Core Machinery Orders. Estimate 0.9%
• 20:00 US FOMC Member Robert Kaplan Speaks

*All release times are GMT

*Key events are in bold

GBP/USD for Tuesday, October 10, 2017

GBP/USD October 10 at 11:25 EDT

Open: 1.3142 High: 1.3204 Low: 1.3131 Close: 1.3215

GBP/USD Technical

GBP/USD edged higher in the Asian and European sessions. The pair continues to move upwards in North American trade

• 1.3121 is providing support
• 1.3224 is under pressure in resistance. This line could break in the North American session.

Further levels in both directions:

• Below: 1.3121, 1.3022 and 1.2904
• Above: 1.3224, 1.3347, 1.3444 and 1.3514
• Current range: 1.3121 to 1.3224

OANDA’s Open Positions Ratio

GBP/USD ratio is showing little movement in the Tuesday session. Currently, long positions have a slight lead (52%), indicative of trader bias towards GBP/USD continuing to move 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.