GBP/USD – Stellar US Jobs Numbers Send Cable Reeling

The British pound has lost ground for a second straight day, dropping below the 1.31 level on Friday. The pair is currently trading at 1.3030. GBP/USD has posted sharp losses in the North American session following the release of strong US employment numbers. Nonfarm Employment Change sparkled, with a reading of 255 thousand. Average Hourly Earnings improved to 0.3% and the Unemployment Rate remained at 4.9%. In the UK, British Halifax HPI declined 1.0 percent, a sharper decline than expected.

It’s been a rough couple of days for the pound, which has plunged about 300 points since the Bank of England lowered interest rates on Thursday. Sharp US job numbers, led by Nonfarm Employment Change, have pushed the pound close to the symbolic 1.30 level. The payroll report surprised the markets with a huge gain of 255 thousand, crushing the estimate of 180 thousand. US wage growth also was positive, as Average Hourly Earnings gained 0.3%, edging above the forecast of 0.2%. This was the indicator’s strongest gain in three months. These strong numbers will likely increase the odds of a September rate hike by the Federal Reserve, which had dropped following a weak GDP report last week.

On Thursday, 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. A rate cut had been widely expected, especially after the BoE surprised the markets in July when it did not make a move. Still the pound plunged after the announcement, losing some 220 points. The surprise Brexit vote in June, in which the British electorate voted to leave the European Union, shook 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 repercussions of Brexit, and has cut rates and expanded asset purchases in an attempt to stabilize the economy and promote consumer confidence and spending. In making these moves, BoE Governor Mark Carney is showing that he “means business” and is willing to take significant monetary steps in order to right the listing British economy.

Almost lost in the excitement leading up to the BoE rate decision were the British PMI reports, which continue to point to contraction. This has raised concerns about the health of the British economy. On Wednesday, Services PMI posted a second straight contraction in July, with a weak reading of 47.4 points. However, the pound didn’t react as this reading matched the forecast.  Other sectors of the economy have fared no better, with readings below the 50-level, which indicates contraction. A special Manufacturing PMI report was published on July 22, covering the 4-week period immediately following the Brexit vote. The index dropped to 49.1 points. The negative trend has continued, as Manufacturing and Construction PMIs for July failed to break above the 50-level. There are growing worries that additional third quarter numbers, including GDP reports, will point to a weakening British economy due to the fallout from Britain’s surprise decision to leave the European Union. 

GBP/USD Fundamentals

Friday (August 5)

• 3:30 British Halifax HPI. Estimate -0.1%. Actual -1.0%
• 8:30 US Average Hourly Earnings. Estimate 0.2%. Actual 0.3%
• 8:30 US Non-Farm Employment Change. Estimate 180K. Actual 255K
• 8:30 US Unemployment Rate. Estimate 4.8%. Actual 4.9%
• 8:30 US Trade Balance. Estimate -42.1B. Actual -44.5B
• 15:00 US Consumer Credit. Estimate 15.5B

*Key releases are highlighted in bold

*All release times are EDT

GBP/USD for Friday, August 5, 2016

GBP/USD August 5 at 9:20 GMT

Open: 1.3126 High: 1.3175 Low: 1.3021 Close: 1.3041

GBP/USD Technical

• GBP/USD was flat in the Asian session. The pair posted gains in European trade but has reversed directions early in the North American session and posted sharp losses
• 1.2938 is providing support
• 1.3064 has switched to resistance following sharp losses by GBP/USD in the North American session. It 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 little movement on Friday. Currently, short positions have a slight majority (53%), indicative of trader bias towards GBP/USD continuing to lose 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.