GBP/USD – Pound Steadies as MPC Member Haldane Supports Rate Hike

The British pound has stabilized and posted slight gains in the Wednesday session. In North American trade, GBP/USD is trading at 1.2660. On the release front, the UK deficit narrowed to GBP 6.0 billion, better than the forecast of GBP 7.3 billion. The BoE’s chief economist, Andy Haldane, made headlines when he said that he supports raising rates later this year. In the US, Existing Home Sales improved to 5.62 million, beating the estimate of 5.54 million. On Thursday, the US releases unemployment claims.

There were more developments out of the BoE, as policymakers continue to make public statements as to whether the BoE should raise interest rates or not. On Wednesday, MPC member Andy Haldane said that the bank might need to raise interest rates soon, in order to ward off inflation. Haldane noted that the British economy continues to grow and the labor market remains strong. Haldane was not one of three MPC members who voted for a rate hike last week. The markets misread the amount of support for a hike, predicting that the vote to hold rates would be 8-1; instead it was a much closer 6-3. Haldane said that he had voted with the majority due to concerns over the recent election and weak wage growth.

BoE Governor Carney was unusually blunt in a speech in London on Tuesday, when addressing interest rate policy. Carney poured cold water on raising interest rates, saying that “now is not yet the time to begin that adjustment”. The pound reacted sharply to Carney’s comments, losing 0.91% in the Tuesday session. With the economy having weathered the Brexit storm quite well, there have been calls for the BoE to raise rates, which hasn’t happened in over a decade. The pressure was ratcheted higher last week, when three of nine MPC members voted to raise rates. Clearly, Carney felt the need to act and resist the calls for higher rates. The cautious Carney noted that consumer spending had dropped, and that more time was needed to evaluate how the economy reacted to the “reality of Brexit negotiations”. Carney finds himself in a corner, as he is dead set against hiking rates, but the weak pound has pushed inflation to unhealthy levels, as CPI rose 2.9% in May. If Carney holds back on any rate increases, inflation could continue to climb. 

Oil Spill Sends Stocks and Yields Lower, Dollar Steady

GBP/USD Fundamentals

Wednesday (June 21)

• 4:30 British Public Sector Net Borrowing. Estimate 7.3B. Actual 6.0B
• 7:00 MPC Member Andy Haldane Speaks
• 10:00 US Existing Home Sales. Estimate 5.54M. Actual 5.62M
• 10:30 US Crude Oil Inventories. Estimate -1.2M. Actual -2.5M

Thursday (June 22)

• 8:30 US Unemployment Claims. Estimate 241K

*All release times are EDT

*Key events are in bold

GBP/USD for Wednesday, June 21, 2017

GBP/USD June 21 at 11:45 EDT

Open: 1.2629 High: 1.2710 Low: 1.2590 Close: 1.2663

GBP/USD Technical

• GBP/USD was flat in the Asian session. The pair posted considerable losses in European trade and the downturn continues in North American trade
• 1.2571 is providing support
• 1.2706 is the next line of resistance

Further levels in both directions:

• Below: 1.2571, 1.2401 and 1.2313
• Above: 1.2706, 1.2865, 1.2946 and 1.3058
• Current range: 1.2571 to 1.2706

OANDA’s Open Positions Ratio

GBP/USD ratio is showing movement towards long positions. Currently, short positions have a majority (54%), indicative of trader bias towards GBP/USD continuing to move 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.