GBP/USD – Strong UK Employment Numbers Fail to Rally Pound, Fed Minutes Loom

The British pound has posted losses in the Wednesday session. In North American trade, GBP/USD is trading at 1.3946, down 0.37% on the day. On the release front, British employment numbers were solid. Wage growth remained at 2.5%, matching the forecast. Unemployment rolls declined 7.2 thousand, crushing the estimate of a 2.3 thousand gain. However, the unemployment rate ticked up to 4.4%, above the estimate of 4.4%. In the US, the key event is the Federal Reserve minutes from the January meeting. Earlier, Existing Home Sales disappointed, dropping to 5.38 million. This was well short of the estimate of 5.61 million. On Thursday, the UK releases revised GDP for the fourth quarter as well as Preliminary Business Investment. The US will publish unemployment claims.

The Bank of England has been hinting that it could speed up the pace of rate hikes, and this was further reinforced on Wednesday, as BoE Chief Economist Andy Haldane said that interest rates might need to climb faster than previously expected, in order to bring down inflation to the BoE’s target of 2 percent. The Bank has been reluctant to raise rates in order to lower inflation, but may be running out of options, as inflation hovers at 3 percent and continues to erode the purchasing power of consumers. The Bank has taken pains to be transparent with the markets, stating recently that the pace of rate hikes could be accelerated and larger hikes than previously forecast could be on the way.

It’s been a busy start for Jerome Powell, who has just commenced his stint as chair of the Federal Reserve. Strong US data in recent weeks has raised speculation that the Fed may need to accelerate the pace of interest rate hikes in 2018. The Fed is currently projecting three rate hikes this year, but if inflation continues to move upwards, many analysts are expecting that the Fed could press the rate trigger four, or even five times in 2018. Meanwhile, concern over higher inflation and more rate hikes sent the stock markets into a frenzy earlier in February. Powell sought to reassure the markets that the Fed was monitoring the situation, but it’s doubtful that the Fed can do much to prevent volatility in the markets.

GBP/USD Fundamentals

Wednesday (February 21)

• 4:30 British Average Earnings Index. Estimate 2.5%. Actual 2.5%
• 4:30 British Claimant Count Change. Estimate 2.3K. Actual -7.2K
• 4:30 British Public Sector Net Borrowing. Estimate -11.5B. Actual -11.6B
• 4:30 British Unemployment Rate. Estimate 4.3%. Actual 4.4%
• 9:15 British Inflation Report Hearings 
• 9:45 US Flash Manufacturing PMI. Estimate 55.4. Actual 55.9
• 9:45 US Flash Services PMI. Estimate 53.8. Actual 55.9
• 10:00 US Existing Home Sales. Estimate 5.61M. Actual 5.38M
• 14:00 US FOMC Meeting Minutes

Thursday (February 22)

• 4:30 British Second Estimate GDP. Estimate 0.5%
• 4:30 British Preliminary Business Investment. Estimate 0.5%
• 8:30 US Unemployment Claims. Estimate 230K

*All release times are GMT

*Key events are in bold

GBP/USD for Wednesday, February 21, 2018

GBP/USD February 21 at 12:10 EDT

Open: 1.3996 High: 1.4009 Low: 1.3994 Close: 1.3946

GBP/USD Technical

GBP/USD edged lower in Asian trade and posted stronger losses in the European session. GBP/USD has posted small gains in North American trade

• 1.3901 is providing support
• 1.4010 is the next resistance line

Current range: 1.3901 to 1.4010

Further levels in both directions:

• Below: 1.3901, 1.3809 and 1.3744
• Above: 1.4010, 1.4128, 1.4271 and 1.4345

OANDA’s Open Positions Ratio

GBP/USD ratio is almost unchanged in the Wednesday session. Currently, short positions have a majority (57%), indicative of trader bias towards GBP/USD continuing to move to lower 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.