GBP/USD – Pound Gains Ground on Stronger Wage Growth

The British pound has posted gains in the Wednesday session. In North American trade, GBP/USD is trading at 1.3359, up 0.30% on the day. On the release front, British Average Earnings Index improved to 2.5%, matching the forecast. However, Claimant Count Change increased by 5.9 thousand, compared to a forecast of 0.4 thousand. In the US, inflation numbers were a mix. CPI improved to 0.4%, matching the forecast. However, Core CPI, which excludes volatile items such as food and energy prices, edged lower to 0.1%, missing the estimate of 0.2%. Later in the day, the Federal Reserve is expected to raise rates to a range between 1.25% to 1.50%. On Thursday, the US releases retail sales reports and unemployment claims.

Inflation levels continue to concern policymakers in the UK, as CPI climbed to 3.1% in November, edging above the forecast of 3.0%. Inflation is now running at its highest level since March 2012. BoE Governor Mark Carney will be on the hot seat, as inflation continues to outstrip wage growth, leaving consumers with less purchasing power. The BoE raised rates in November for the first time in a decade, but the move has failed to blunt inflation from continuing to rise. The BoE is expected to maintain rates on Thursday, but the Bank may have to hike rates early in the year if inflation does not retreat below the 3.0% level.

The Federal Reserve is in the spotlight, as policymakers meet for a monthly policy meeting later on Wednesday. The CME Group has priced in a quarter-point rate hike at 87%, so it would be a huge surprise if the Fed doesn’t raise the benchmark rate. Even though this move has been priced in, rate hikes tend to trigger a surge of confidence among investors, and a rate hike could boost global stock markets. Today’s move could be the start of a series of incremental hikes, as the odds of a January increase stand at 86%. The Fed has hinted that it could raise rates up to three times in 2018, but the pace of increases will depend to a great extent on the strength of the economy and inflation levels. The US labor market remains at full capacity and various sectors in the economy are reporting a lack of workers. Still, this has not translated into stronger wage growth, despite predictions from Janet Yellen and other Fed policymakers that a lack of workers is bound to push up wages.

GBP/USD Fundamentals

Wednesday (December 13)

• 4:30 British Average Earnings Index. Estimate 2.5%. Actual 2.5%
• 4:30 British Claimant Count Change. Estimate 0.4K. Actual 5.9K
• 4:30 British Unemployment Rate. Estimate 4.3%. Actual 4.3%
• 8:30 US CPI. Estimate 0.4%. Actual 0.4%
• 8:30 US Core CPI. Estimate 0.2%. Actual 0.1%
• 14:00 US FOMC Economic Projections
• 14:00 US FOMC Statement
• 14:00 US Federal Funds Rate. Estimate <1.50%
• 14:00 US FOMC Press Conference

Thursday (December 14)

• 4:30 British Retail Sales. Estimate 0.4%.
• 7:00 British MPC Official Bank Rate Votes. Estimate 0-0-9
• 7:00 BoE Monetary Policy Summary
• 7:00 BoE Official Bank Rate. Estimate 0.50%
• 8:30 US Core Retail  Sales. Estimate 0.6%
• 8:30 US Retail  Sales. Estimate 0.3%
• 8:30 US Unemployment Claims. Estimate 237K

*All release times are GMT

*Key events are in bold

GBP/USD for Wednesday, December 13, 2017

GBP/USD December 13 at 12:05 EDT

Open: 1.3319 High: 1.3378 Low: 1.3311 Close: 1.3359

GBP/USD Technical

GBP/USD has posted slight gains in the Asian and European sessions. The pair continues to move higher in the North American session

• 1.3321 is providing support
• 1.3402 is the next resistance line

Further levels in both directions:

• Below: 1.3321, 1.3186 and 1.3035
• Above: 1.3402, 1.3503, 1.3655 and 1.3809
• Current range: 1.3321 to 1.3402

OANDA’s Open Positions Ratio

GBP/USD ratio is unchanged this week. Currently, short positions have a majority (54%), indicative of trader bias towards GBP/USD reversing directions and moving lower.

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.