GBP/USD – Pound Steady in Holiday-Thinned Trade

The British pound has edged higher in the Monday session. In the North American session, GBP/USD is trading at 1.2840. With markets closed in both the UK and the US for holidays, trading is likely to remain muted throughout the day. There are no economic events on the schedule. On Tuesday, the US releases CB Consumer Spending.

The bombing in Manchester last week has thrown a wrench into the British election campaign, as Prime Minister May’s Conservative party lead in the polls has dropped considerably. Although May is still expected to form a majority government, a smaller majority could complicate matters when Britain and the European Union commence negotiations on Britain’s departure from the EU. On Friday, the pound slipped 1.1% in response to the latest opinions polls, which showed May with just a 10-point lead over Labor’s Jeremy Corbyn. Early in the campaign, May’s lead was as high as 21 points over Corbyn, so the election, which looked to be a cakewalk for May, has tightened considerably. Meanwhile, a soft British GDP has raised questions about the strength of the economy. Last week, British Second Estimate GDP for Q1 was revised to 0.2%, down from 0.3% back in April. Although the dip was certainly not dramatic, it was well short of GDP in Q4, which posted a respectable gain of 0.7%. The soft reading has raised concerns that Brexit is finally taking a toll on the British economy, which has performed well since the referendum in June 2016. Consumer spending, a key driver of economic growth, had its worst quarter since 2014, as nervous consumers are holding tighter to their purse strings.

Sterling Steady After Opinion Poll Pounding

The US economy expanded at an annual rate of 1.2%, according to the second estimate for GDP. This was considerably higher than the 0.7% gain which was reported in the first estimate in April. Although the revised figure was good news, GDP in Q1 was the lowest in a year, and well off the 2.1% gain in Q4. Business spending remains weak, and although consumer confidence remains at high levels, consumer spending has not kept up, as retail sales was softer than expected in April. The manufacturing sector has hit some turbulence, with Core Durable Goods Orders posting a decline of 0.4% in April, its third decline in four months. After a shaky first quarter for the US economy, there are no indications pointing to a rebound in the second quarter. Will this lead to the Fed rethinking a June rate hike? The markets don’t seem to think so, as the odds of a 0.25% rate hike have increased to 84%. At the same time, the likelihood of a rate hike in the second half of 2017 are low. The odds for a September rate are just 26%, with the markets unclear on whether the Fed will make further moves this year if inflation remains below the Fed target. Even if soft first quarter data was a blip, the markets are concerned that President Trump, who is facing congressional investigations over his connections with the Russian government, could be seriously weakened and may not be able to pass his pro-business agenda through Congress.

Q1 US GDP Revised Up to 1.2%

GBP/USD Fundamentals

Monday (May 29)

• There are no UK or US events

Tuesday (May 30)

• 8:30 US Core PCE Price Index. Estimate 0.1%
• 8:30 US Personal Spending. Estimate 0.4%
• 10:00 US CB Consumer Spending. Estimate 120.1

*All release times are EDT

*Key events are in bold

GBP/USD for Monday, May 29, 2017

GBP/USD May 26 at 12:10 EDT

Open: 1.2805 High: 1.2850 Low: 1.2801 Close: 1.2840

GBP/USD Technical

• GBP/USD showed little movement in the Asian and European sessions. The pair has edged higher in North American trade
• 1.2706 is providing support
• 1.2865 is the next line of resistance. It is a weak line

Further levels in both directions:

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

OANDA’s Open Positions Ratio

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