GBP/USD – Pound Sags to 1.49 After Dismal Week

The pound is unchanged on Monday, as GBP/USD is trading at 1.4920 line in the European session. In economic news, the week is starting quietly, with just one economic release on the calendar. British CBI Realized Sales improved sharply in December, coming in at 19 points. There are no US releases on Monday.

It was a disastrous week for the British pound, which lost over 300 points against the US dollar and briefly fell below the 1.49 line in the process. The pound has been no match for the might greenback, as GBP/USD continues to trade close to 8-month lows. Low inflation levels continue to hobble the UK economy; CPI, the prime gauge of consumer inflation, has posted a gain of over 0.1% just once in 2015. Employment numbers were unimpressive last week, as Claimant Count Change rose unexpectedly to 3.9 thousand, much higher than the estimate of 0.9 thousand. Add to this unhealthy mix the Fed rate hike which has supported the US dollar, and the grim result was the pound’s worst weekly slide since early November.

After months of speculation, the Federal Reserve raised interest rates by 0.25% last week, the first upward move since June 2006. The Fed dropped a broad hint in its October policy meeting about a rate hike before the end of 2015, and predictably, investors and traders were busy trying to guess whether the Fed would indeed press the rate trigger. To the credit of Fed chief Janet Yellen and her colleagues, the Fed put into place a carefully-crafted strategy, sending a steady of stream of signals that it was intending to tighten monetary policy, if economic conditions remained positive. This gave the markets ample time to price in a rate hike, and the currency markets did not display excessive volatility last week, given the magnitude of a US rate hike for the first time in almost 10 years.

The rate hike of just 0.25 percent is expected to have limited economic impact, but the psychological aspect of the rate move cannot be overemphasized, as the Fed has given the US economy a critical vote of confidence, and has indicated that additional rates are likely over the course of 2016. The Fed’s strategy contrasts sharply with the bungled approach of Mario Draghi at the ECB, who hinted that the ECB would take significant easing steps at its December meeting, but failed to deliver as the ECB did little more than extend the current QE program for another six months. This led to complete turmoil in the markets, resulting in the euro surging by as much as 500 points before it leveled off.

GBP/USD for Monday, December 21, 2015

GBP/USD December 21 at 13:55 GMT

GBP/USD 1.4918 H: 1.4930 L: 1.4884

GBP/USD Technical

• GBP/USD has been marked by choppy trading throughout the day and has shown little change.
• 1.4813 is providing support.
• 1.4952 is a weak resistance line. 1.5026 is stronger.
• Current range: 1.4813 to 1.4952

Further levels in both directions:

• Below: 1.4813, 1.4695 and 1.4601
• Above: 1.4952, 1.5026 and 1.5153

OANDA’s Open Positions Ratio

GBP/USD ratio is showing a strong majority for long positions (64%). This is indicative of trader bias towards the pound reversing directions and moving higher.

GBP/USD Fundamentals

Monday (Dec. 21)

• 11:00 British CBI Realized Sales. Estimate 22 points. Actual 19 points

Upcoming Key Events

Tuesday (Dec. 22)

• 13:30 US Final GDP. Estimate 1.9%

*Key releases are highlighted in bold

*All release times are GMT

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.