GBP/USD – Steady As No Surprises From BOE

The British pound continues to trade quietly on Thursday, continuing the lack of activity seen a day earlier. In the North American session, GBP/USD is trading in the mid-1.69 range. In economic news, the Bank of England made no changes to the current levels of QE and the benchmark interest rate. Halifax HPI looked weak, posting a second straight decline. In the US, Unemployment Claims rebounded nicely, dropping to a three-week low. In Washington, Federal Reserve chair Janet Yellen testifies before the Senate Budget Committee.

US Unemployment Claims rebounded last week, as the key indicator dipped to 319 thousand. This beat the estimate of 328 thousand. The reading follows last week’s excellent Nonfarm Payrolls and Unemployment Claims, as the US employment picture appears to have brightened. If employment numbers continue to improve, we can expect the Fed to continue tapering its QE scheme.

Federal Reserve Chair Janet Yellen testified before Congress’ Economic Joint Committee on Wednesday, and gave a cautious thumbs-up to the economic recovery. She said that the economy has improved, but pointed to two sore spots – the job market remains weak and inflation is below the Fed’s target of 2%. Yellen stated that she therefore expects that low interest rate levels will continue for a “considerable time”. Yellen has stated previously that slack remains in the economy, and the Fed is expected to proceed carefully with future trims to its QE scheme. Since December, the Fed has trimmed the asset-purchase program by almost half, cutting it to $45 billion each month.

It was more of the same from the BOE, as it maintained two key components of its monetary policy on Thursday. The Bank kept its bond-purchase scheme at 375 billion pounds, where it has been pegged since July 2010. As well, interest rates remain at 0.50%, unchanged since March 2009. There has been pressure on the BOE to raise rates as the British recovery continues. Last week, the OECD raised its forecast for UK growth for 2014 from 2.4% to 3.2%. However, the BOE is in no rush to raise rates, and BOE Governor Mark Carney has insisted that no rate hikes are in the cards before 2015.

British PMIs continue to look strong, indicative of ongoing expansion throughout the British economy. Services PMIs climbed to 58.7 points, marking a four-month high. This easily beat the estimate of 57.9 points. Last week, Manufacturing PMI came in at 57.3 points, easily beating the estimate of 55.4 points. Construction PMI remained high at 60.8 points, although this did fall short of the forecast of 62.2 points.

GBP/USD for Thursday, May 8, 2014

GBP/USD May 8 at 15:50 GMT

GBP/USD 1.6948 H: 1.6974 L: 1.6934

GBP/USD Technical

• GBP/USD is steady in Thursday trading. The pair touched a high of 1.6974 in the European session.
• On the upside, the key line 1.70 is providing resistance. The next resistance line is at 1.7210.
• 1.6896 is providing support. 1.6765 is stronger.

Further levels in both directions:

• Below: 1.6896, 1.6765, 1.6705 and 1.6549
• Above: 1.70, 1.7210, 1.7374 and 1.7538

OANDA’s Open Positions Ratio

GBP/USD ratio is pointing to gains in long positions in Thursday trading, reversing the trend seen a day earlier. This is not consistent with the movement of the pair, as the pound is almost unchanged. A large majority of the open positions in the GBP/USD ratio are short, indicative of a trader bias to the dollar moving upwards.

GBP/USD continues to trade close to the key 1.70 level. The pair is stable in the North American session.

GBP/USD Fundamentals

• 6:59 British Halifax HPI. Estimate 0.8%. Actual -0.2%.
• 11:00 British Asset Purchase Facility. Estimate 375B. Actual 375B.
• 11:00 British Official Bank Rate. Estimate 0.50%. Actual 0.50%.
• 12:30 US Unemployment Claims. Estimate 328K. Actual 319K.
• 13:30 US Federal Reserve Chair Janet Yellen Testifies Before Senate Budget Committee.
• 13:30 US FOMC Member Daniel Tarullo Speaks.
• 14:30 US Natural Gas Storage. Estimate 71B. Actual 74B.
• 17:01 US 30-year Bond Auction.

*Key releases are highlighted in bold

*All release times are GMT

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