GBP/USD – Sterling Sparkles After BoE Remains on Sidelines

The British pound has taken a breather on Friday, following excellent gains in the Thursday session. GBP/USD has edged higher on Friday, trading at 1.3370. On the release front, BoE Governor Mark Carney will speak at an event in Toronto. In the US, it’s a busy day. We’ll get a look at CPI and Retail Sales reports, as well as the UoM Consumer Sentiment Index. Consumer numbers are critical for economic growth, so the markets will be following the US releases closely. Any unexpected readings could have a strong impact on the movement of GBP/USD.

US numbers looked sharp on Thursday. Inflation showed some strength, as PPI climbed 0.5 percent, ahead of the estimate of 0.3 percent. This marked the highest monthly gain since May 2015. Core PPI followed suit with a gain of 0.4 percent, beating the forecast of 0.1 percent. On the employment front, Unemployment Claims remained at 254 thousand, below the estimate of 263 thousand. Is US inflation on the move? We’ll get a look at CPI numbers on Friday, and a solid release could boost the US dollar.

The drama continues in Britain, where financial and political developments are unfolding on an almost daily basis. On Thursday, the BoE surprised the markets by staying put and not lowering interest rates. The markets had widely expected a quarter point cut from the BoE, which would have marked the first rate cut since July 2009. BoE Mark Carney had  strongly hinted at the move when he recently stated that economic conditions had deteriorated and the BoE would need to lower rates in the summer, but Carney has evidently decided to wait. On the political front in Britain, Theresa May replaced David Cameron as Prime Minister on Wednesday. May was a strong supporter of the Remain camp, but she will now be mandated with presiding over Britain’s exit from the European Union. May has stated that the government fully intends to honor the referendum vote, stating emphatically this week that “Brexit means Brexit”. However, Britain’s exit could be a protracted and messy affair, especially as May has named Boris Johnson, leader of the “Leave” camp, as foreign minister. Johnson and EU leaders do not enjoy a good relationship, but all will have to behave and get to tricky matter at hand – commencing negotiations over Britain’s departure and establishing a new trade relationship between Britain and the continent.

The financial markets are counting on the BoE to cushion the expected economic slowdown in Britain due to Brexit, and there is even talk of a recession. However, there is no hard economic data about the effects of Brexit on the economy and none will be available before September. There was certainly surprise that the central bank didn’t lower rates on Thursday, but this will likely prove to be just a short delay, with the markets expecting a rate cut in August. Testifying before a parliamentary committee this week, BoE Governor Carney acknowledged that Brexit could lead to a downturn in the economy, and that the steps the central bank was taking in response would not provide a “magic bullet” against Brexit. The dramatic and historic vote to leave the EU in late June has caused political and financial turmoil in Britain and sent the pound reeling. Still, there is some optimism in the air with the change in guard at 10 Downing Street, as the political landscape seems to have stabilized much more quickly than expected.

GBP/USD Fundamentals

Friday (July 15)

• 4:30 UK Construction Output. Estimate -1.1%. Actual -2.1%
• 8:00 BoE Governor Mark Carney Speaks
• 8:30 US CPI. Estimate 0.2%
• 8:30 US Core CPI. Estimate 0.2%
• 8:30 US Retail Sales. Estimate 0.4%
• 8:30 US Core Retail Sales. Estimate 0.1%
• 8:30 US Empire State Manufacturing Index. Estimate 5.1 
• 9:15 US Capacity Utilization Rate. Estimate 75.2%
• 9:15 US Industrial Production. Estimate 0.2%
• 10:00 US Preliminary UoM Consumer Sentiment. Estimate 93.7 
• 10:00 US Business Inventories. Estimate 0.1%
• 10:00 US Preliminary UoM Inflation Expectations

* Key releases are in bold

*All release times are EDT

GBP/USD for Friday, July 15, 2016

GBP/USD July 15 at 6:50 GMT

Open: 1.3350 High: 1.3480 Low: 1.3339 Close: 1.3372

GBP/USD Technical

• GBP/USD posted strong gains in the Asian session but has retracted in European trading
• 1.3349 is providing support.
• There is weak resistance at 1.3419. This line was tested earlier and could see further action during the day

Further levels in both directions:

• Below: 1.3349, 1.3219, 1.3142 and 1.3064
• Above: 1.3419, 1.3513 and 1.3675
• Current range: 1.3349 to 1.3419

OANDA’s Open Positions Ratio

GBP/USD ratio has shown strong gains in short positions, consistent with the gains by GBP/USD on Thursday which covered long positions. Currently, long positions have a small majority (52%), indicative of slight trader bias towards GBP/USD continuing to move higher.

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.