GBP/USD – Pound Struggling to Stay Above 1.30, Manufacturing Production Next

The British pound has started the week with slight losses. In the North American session, GBP/USD is trading at 1.3040. On the release front, it’s a very quiet start to the week, with just two events on the calendar. The US Labor Market Conditions Index improved to plus-1, marking its first gain since January. Later on Monday, the UK will release the BRC Retail Sales Monitor, a minor consumer spending indicator. On Tuesday, the UK releases Manufacturing Production, with an estimate of 0.0%.

The pound started last week with strong gains, but these were wiped out by the dramatic BoE rate cut on Thursday. Since the stunning Brexit vote in late June, the bank had put the market on notice that a rate cut was coming, and the BOE made good on its word, lowering interest rates for the first time since 2009. The quarter-point cut has lowered the official bank rate from 0.50% to a historic low of 0.25%. The BoE has also expanded its asset-purchase program for the first time since July 2012, from GBP 375 billion to GBP 425 billion pounds. Although the rate cut was widely expected, the pound nevertheless lost over 200 points following the dramatic move. Britain’s decision to depart the EU has shaken the financial markets, and the economic fallout, which is just beginning to be measured, is expected to be significant. The BoE is trying to cushion the negative impact of Brexit, and has cut rates and expanded asset purchases in an attempt to stabilize the economy and promote consumer confidence and spending. BoE Governor Mark Carney has shown that he is willing to take decisive monetary action in order to bolster the British economy, which is expected to weaken in the third quarter. Last week’s service and manufacturing PMI reports pointed to contraction, and further soft data could batter the struggling British currency.

The US dollar recorded broad gains on Friday, courtesy of excellent US employment numbers. The pound was no exception and dropped below the 1.31 level. Nonfarm Employment Change, one of the most important indicators, surprised the markets with a huge gain of 255 thousand, crushing the estimate of 180 thousand. US wage growth has been a soft spot in the strong labor market, but there was positive news as Average Hourly Earnings gained 0.3%, edging above the forecast of 0.2%. As well, Unemployment Claims remained steady at 4.9%. On Monday, the Labor Market Conditions Index, which provides a snapshot of labor activity, improved to plus-1, ending a nasty streak of five straight declines. These strong job numbers will likely increase the odds of a September rate hike by the Federal Reserve. The Fed has made no secret of the fact that any rate move will be data-dependent, and upcoming employment and inflation reports will be critical factors in the Fed’s decision. The recent US GDP report, which was much softer than expected, had dampened speculation about a rate hike before next year, but the stellar job numbers has increased the likelihood a move by Fed before the end of the year.

GBP/USD Fundamentals

Monday (August 8)

• 10:00 US Labor Market Conditions Index. Actual 1.0
• 19:01 British BRC Retail Sales Monitor

Upcoming Key Events

Tuesday (August 9)

4:30 British Manufacturing Production. Estimate 0.0%

*Key releases are highlighted in bold

*All release times are EDT

GBP/USD for Monday, August 8, 2016

GBP/USD August 8 at 10:30 GMT

Open: 1.3072 High: 1.3096 Low: 1.3032 Close: 1.3045

GBP/USD Technical

• GBP/USD was flat in the Asian session. The pair posted slight losses in European trade but is unchanged in North American trade
• 1.2938 is providing support
• 1.3064 was tested in resistance earlier and is a weak line

Further levels in both directions:

• Below: 1.2938, 1.2778 and 1.2680
• Above: 1.3064, 1.3142 and 1.3219
• Current range: 1.2938 to 1.3064

OANDA’s Open Positions Ratio

GBP/USD ratio is showing long positions with a majority (55%), indicative of trader bias towards GBP/USD reversing directions and moving to higher 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.