GBP/USD – Pound Rebounds as UK Consumer Credit Rises

GBP/USD has reversed directions and posted strong gains in the Tuesday session. In North American trade, the pair is trading slightly above the 1.25 level. In the UK, British Net Lending to Individuals improved to GBP 4.9 billion, above the estimate of 4.8 billion. Mortgage Approvals also pointed higher, climbing to 68 thousand, marking a 7-month high. In the US, Preliminary GDP sparkled in the third quarter, gaining 3.2%, which was above the forecast of 3.0%. The 3.2% gain was an upwards revision of Advance GDP, which came in at 2.9%. CB Consumer Confidence jumped to 107.1 points, crushing the estimate of 101.7 points. On Wednesday, the UK releases Bank Stress Test Results and the BoE Financial Stability Report. In the US, key employment indicators kick off with the release of ADP Nonfarm Employment Change. The markets are expecting a strong improvement, with an estimate of 161 thousand.

US Q3 GDP Revised Upward on Consumer Spending

The British pound has taken a sharp hit since the Brexit vote in June, losing over 16 percent against the dollar. However, British indicators continue to look solid, often beating expectations. With the economy in good shape, the BoE held rates earlier this month, and Mark Carney acknowledged that the bank had been overly pessimistic about fallout from the Brexit vote. However, negotiations with the European Union are yet to begin and many European leaders are already taking a tough stance. Last week, Maltese Premier Joseph Muscat said that the EU will insist on Britain paying a “departure payment” before trade negotiations even begin. British ministers have said post-Brexit, Britain will be able to enjoy unfettered access to European markets while restricting immigration into the UK. This claim has irked European leaders, who insist that Britain cannot cherry pick and enjoy free trade with the continent while implementing its own immigration policy.

Talks on Final Brexit Deal Will Have to Wait

Strong consumer confidence has been a critical factor in the US recovery, as an optimistic consumer is likely to go out and spend money. CB Consumer Confidence jumped to 107.1 points in November, surpassing the 100-level for the third time in four months. Last week, UoM Consumer Sentiment jumped to 93.8 points, its highest level since May. Donald Trump’s surprise election victory has not had an adverse effect on consumer confidence, and if these rosy numbers translate into stronger consumer spending, the US dollar could continue to climb against its rivals.

The markets are virtually certain that the Fed will raise interest rates a quarter-point in December, with the odds of a rate hike at 93 percent. The Fed minutes were released on Thursday, indicating that policymakers felt it appropriate to raise rates “relatively soon”. Earlier this month, Fed Chair Janet Yellen used the same phrase in her testimony before a congressional committee. The minutes indicated that some members argued that the Fed needs to raise rates in December in order to preserve the bank’s credibility – despite some broad hints of rate hikes during 2016, the Fed has stayed on the sidelines throughout 2016, causing significant disappointment and frustration in the markets.

GBP/USD Fundamentals

Tuesday (November 29)

• 4:30 British Net Lending to Individuals. Estimate 4.8B. Actual 4.9B
• 4:30 British M4 Money Supply. Estimate 0.2%. Actual 1.1%
• 4:30 British Mortgage Approvals. Estimate 66K. Actual 68K
• 8:15 US FOMC Member William Dudley Speech
• 8:30 US Preliminary GDP. Estimate 3.0%. Actual 3.2%
• 8:30 US Preliminary GDP Price Index. Estimate 1.5%. Actual 1.4% 
• 9:00 US S&P/CS Composite-20 HPI. Estimate 5.3%. Actual 5.1%
• 10:00 US CB Consumer Confidence. Estimate 101.3 points. Actual 107.1
• 12:40 US FOMC Member Jerome Powell Speech
• 19:01 British GfK Consumer Confidence. Estimate -4 points

Upcoming Key Events

Wednesday (November 30)

• 2:00 UK Bank Stress Test Results
• 2:00 BoE Financial Stability Report
• 8:15 US ADP Nonfarm Employment Change. Estimate 161K

*All release times are EST

* Key events are in bold

GBP/USD for Tuesday, November 29, 2016

GBP/USD November 29 at 10:55 EST

Open: 1.2407 High: 1.2523 Low: 1.2385 Close: 1.2517

GBP/USD Technical

• GBP/USD was flat in the Asian session. The pair posted considerable gains in European trade and continues to move higher in the North American session
• 1.2471 has switched to a support role following strong gains by GBP/USD
• There is resistance at 1.2620

Further levels in both directions:

• Below: 1.2471, 1.2351, 1.2272 and 1.2120
• Above: 1.2620, 1.2778 and 1.2849
• Current range: 1.2471 to 1.2620

OANDA’s Open Positions Ratio

GBP/USD ratio is unchanged in the Tuesday session. Currently, long positions have a majority (62%). This is indicative of trader bias towards GBP/USD continuing to gain 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.