GBP/USD – Soft British GDP Sends Pound Plunging

The British pound has posted sharp losses in the Friday session. Currently, GBP/USD is trading at 1.3767, down 1.08% on the day. On the release front, there are key events on both sides of the pond. British Preliminary GDP for the first quarter posted a weak gain of 0.1% in the first quarter, missing the estimate of 0.3%. Later in the day, BoE Governor Mark Carney speaks at an event in London.We’ll also get a look at economic performance in the US, with the release of Advance GDP for the first quarter. The estimate stands at 2.0%. The US will also release UoM Consumer Sentiment, which is expected to drop to 98.0 points.

The streaking dollar has steamrolled the pound, which has fallen to its lowest level since late February. The pound has endured a miserable two weeks, losing 3.3% since April 16. Aside from the disappointing British GDP report, the dollar has received a strong boost from higher yields on US bonds, which hit 4-year highs this week. On Wednesday, 10-year US Treasury notes climbed above the symbolic level of 3.0%, which led to investors snapping up bonds at the expense of equities. As oil prices have been moving higher, this has led to expectations of higher inflation, which in turn, has increased sentiment that the Federal Reserve will increase rates four times in 2018, rather than three hikes. This has made the US dollar more attractive to investors.

One of the most thorny issues surrounding Brexit is the Northern Ireland border. Ireland is a member of the European Union and would like to avoid a hard border with the north. However, once Britain leaves the UK, there will have to be some type of border controls between Ireland and Northern Ireland. So far, no satisfactory solution has been found. On Wednesday, Brexit Secretary David Davis said that a solution isn’t needed until the end of the transition period, which concludes in January 2021, since the UK will remain in the single market until that date. What happens after that? Davis would like to see the UK reach a comprehensive trade deal with the EU and a frictionless border, but Brussels may not be interested, with European leaders still smarting over Britain’s exit. Any scenario, called the “backstop plan”, envisions some time of “harmonization” of trade rules between Northern Ireland and the EU. However, the May government has continually expressed opposition to such a plan, so a solution will likely remain elusive until the clock forces the sides to show more flexibility.

The $ continues to test the fringes of bullishness

GBP/USD Fundamentals

 Friday (April 27)

• 2:00 British Nationwide HPI. Estimate 0.2%. Actual 0.2%
• 4:30 British Preliminary GDP. Estimate 0.3%. Actual 0.1%
• 4:30 British Index of Services. Estimate 0.6%. Actual 0.4%
• 8:30 US Advance GDP. Estimate 2.0%
• 8:30 US Advance GDP Price Index. Estimate 2.2%
• 8:30 US Employment Cost Index. Estimate 0.7%
• 10:00 BoE Governor Mark Carney Speaks
• 10:00 US Revised UoM Consumer Sentiment. Estimate 98.0
• 10:00 US Revised UoM Inflation Expectations

*All release times are DST

*Key events are in bold

GBP/USD for Friday, April 27, 2018

GBP/USD April 27 at 8:35 DST

Open: 1.3917 High: 1.3935 Low: 1.3747 Close: 1.3767

GBP/USD Technical

GBP/USD has broken through two support levels after sharp losses on Friday. The pair inched higher in the Asian session and has dropped sharply in European trade.

• 1.3712 is providing support
• 1.3796 is the next resistance line
• Current range: 1.3712 to 1.3796

Further levels in both directions:

• Below: 1.3712, 1.3613, and 1.3494
• Above: 1.3796, 1.3901, 1.4010 and 1.4128

OANDA’s Open Positions Ratio

In the Friday session, GBP/USD ratio is showing long positions with a small majority (51%). This is indicative of a lack of trader bias towards GBP/USD.

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.