GBP/USD – Pound Gains Ground as Services PMI Beats Expectations

GBP/USD has posted modest gains in the Thursday session. In North American trade, the pair is trading at the 1.29 level. On the release front, UK Services PMI improved to 55.8, above the estimate of 54.6 points. Net Lending to Individuals came in at GBP 4.7 billion, above the forecast of GBP 4.5 billion. In the US, unemployment claims dropped to 238 thousand, better than the estimate of 246 thousand. On Friday, the US releases wage growth and nonfarm payrolls reports, so traders should be prepared for some movement from GBP/USD.

It was a clean sweep for PMI reports this week, as the Manufacturing, Construction and Services PMIs all beat their estimates. These releases underscore a solid British economy, despite continuing jitters over Britain’s departure from the European Union. Market concerns have increased ahead of the first phase of negotiations between Britain and the European Union. The war of words between London and Brussels continues to heat up, after reports of a disastrous meeting between Prime Minister Theresa May and European Commission President Jean-Claude Juncker. May attacked the EU on Thursday, saying that politicians in Brussels were deliberately meddling in the  British election, which will be held in June. May reiterated that she wants a “deep and special partnership” with the EU, while at the same time warning that no deal was preferable to a bad deal. May’s combative tone may serve her well in the election campaign, but if negotiations reach an impasse and Britain leaves the EU without a comprehensive deal in place, the toll on the British economy would be significant and the pound could drop sharply.

As expected, the Federal Reserve stayed on the sidelines on Wednesday, holding the benchmark rate at 0.75 percent. The Fed rate statement was hawkish, as policymakers emphasized the positives and downplayed a soft first quarter. The statement noted that consumer spending remains strong and that inflation was “running close” to the Fed’s 2 percent target. The Fed’s message is clearly one of optimism, as the central bank remains on track to raise interest rates twice more in 2017. The Fed’s bullish statement immediately raised the likelihood of a rate hike at June meeting, which jumped to 74 percent after the statement, up from 63% before meeting. The Fed has two key goals which have been achieved, namely full employment and an inflation rate of 2%. One area of concern is the balance sheet, which stands at $4.5 trillion. The minutes of the March meeting stated that policymakers want to start reducing this figure before the end of 2017, and we could see another reference to the balance sheet in the April minutes.

Just a few days ahead of the French election, Emmanuel Macron and Marie Le Pen faced off in a highly-anticipated television debate on Wednesday. Polls taken after the feisty debate showed that 64% of viewers felt Macron won the debate. With a 20-point lead in the polls, Macron had the most to lose from the debate, but he kept his cool and acted presidential, in contrast to Le Pen. Barring a dramatic event in the next few days, such as a terror attack, all signs are pointing to Macron becoming France’s next president. Parliamentary elections are scheduled for June, so the French political landscape will remain uncertain until then. Macron’s En Marche! party is expected to win the most seats, and has an outside short at forming a majority in parliament.

The polling average line looks at the five most recent national polls and takes the median value, ie, the value between the two figures that are higher and two figures that are lower.

Source – BBC

French Election Timeline

May 3 – TV debate between the two remaining candidates

May 5 – [from midnight] Poll blackout

May 7 – Second round of French presidential elections. Last polls close at 19:00 BST / 14:00 EDT, with an exit poll result announced immediately.

May 11 – Official proclamation of the new President.

May 14 – [from midnight] End of Francois Hollande’s mandate

June 11 – First round of legislative elections

June 18 – Second round of legislative elections.

GBP/USD Fundamentals

Thursday (May 4)

• 4:30 British Services PMI. Estimate 54.6. Actual 55.8
• 4:30 British Net Lending to Individuals. Estimate 4.5B. Actual 4.7B
• 7:30 US Challenger Job Cuts. Actual -42.9%
• 8:30 US Unemployment Claims. Estimate 246K. Actual 238K
• 8:30 US Preliminary Nonfarm Productivity. Estimate 0.1%. Actual -0.6%
• 8:30 US Preliminary Unit Labor Costs. Estimate 2.5%. Actual 3.0%
• 8:30 US Trade Balance. Estimate -44.9B. Actual -43.7B
• 10:00 US Factory Orders. Estimate 0.6%. Actual 0.2%
• 10:30 US Natural Gas Storage. Estimate 61B. Actual 67B

Friday (May 5)

• 8:30 US Average Hourly Earnings. Estimate 0.3%
• 8:30 US Nonfarm Employment Change. Estimate 194K
• 8:30 US Unemployment Rate. Estimate 4.6%

*All release times are EDT

*Key events are in bold

GBP/USD for Thursday, May 4, 2017

GBP/USD May 4 at 11:25 EST

Open: 1.2865 High: 1.2923 Low: 1.2830 Close: 1.2903

GBP/USD Technical

• GBP/USD was flat in the Asian session. The pair has posted slight gains in the European and North American sessions
• 1.2865 is providing support
• 1.2946 remains a weak resistance line

Further levels in both directions:

• Below: 1.2865, 1.2706, 1.2571 and 1.2471
• Above: 1.2946, 1.3058 and 1.3121
• Current range: 1.2865 to 1.2946

OANDA’s Open Positions Ratio

GBP/USD ratio is showing slight gains towards short positions. Currently, short positions have a majority (64%). This is indicative of trader bias towards GBP/USD reversing directions and losing 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.