By Kenny Fisher
GBP/USD is showing little activity on Friday, as the pair continues to trade in the mid-1.70 range late in the European session. On the release front, British Public Sector Net Borrowing hit a six-month high, as the deficit swelled in May. In the U.S., markets are open on Friday, but there are no U.S. economic releases on the calendar, so we can expect thin trading of GBP/USD.
There was positive economic news out of the U.S. on Thursday, as Unemployment Claims dipped to 312 thousand last week, beating the estimate of 316 thousand. As well, the Philly Fed Manufacturing Index, which has been on the upswing for most of 2014, continued the trend and improved to 17.8 points, crushing the estimate of 14.3. This was the index's strongest reading since last August, and points to a manufacturing sector which is expanding in order to keep up with increasing demand.
On Wednesday, the Federal Reserve continued to taper to its QE program, reducing the scheme by $10 billion, to $35 billion/month. If all goes as planned, the Fed could wind up QE in the fall. The Fed also hinted that interest rates will continue to stay low for the foreseeable future, which likely means that we won't see any rate hikes before the first quarter of 2015. With regard to economic activity, the Fed noted that the recovery is continuing, but it reduced its forecast of economic growth to 2.1%-2.3%, down from an earlier forecast of around 2.9 percent. The bottom line? There were no dramatic items in the Fed statement, with one analyst describing current Fed policy as "steady as she goes." The perception that U.S. interest rates will remain at ultra-low levels has weighed on the U.S. dollar, and has helped the Canadian dollar hold its own this week.
The British pound pushed above the key 1.70 level on Thursday, gaining on strong UK manufacturing numbers. CBI Industrial Order Expectations jumped to 11 points, easily beating the forecast of 3 points. It was the indicator's best showing since last November, and points to more robust UK manufacturing sector. Retail Sales, the primary gauge of consumer spending, was unable to keep pace. The indicator came in with a weak reading of -0.5%, its first decline since January. The pound managed to shrug off this poor reading since it matched the forecast.
Earlier this week, the BOE opted to hold the course with regard to the benchmark interest rate and the asset purchase program, and as expected, the minutes showed that these decisions were both unanimous (9-0). The BOE kept interest rates at 0.50% and QE at 375 billion pounds. There has been much speculation about when the BOE might raise rates, and Governor Mark Carney singlehandedly caused a run on the pound last week, after stating that a rate increase could occur earlier than expected by the markets. Had the rate decision not been unanimous, we could have seen the high-flying pound climb even higher.
GBP/USD for Friday, June 20, 2014
GBP/USD June 20 at 12:25 GMT
GBP/USD 1.7035 H: 1.7061 L: 1.7033
- GBP/USD is steady on Friday. The pair touched a high of 1.7061 earlier in the European session, but has retracted.
- On the upside, 1.7183 is a strong resistance line. This line has held firm since October 2008.
- The key line of 1.70 finds itself in an unfamiliar support role, as the pound trades at higher levels. 1.6920 is stronger.
- Current range: 1.7000 to 1.7183.
Further levels in both directions:
- Below: 1.7000, 1.6920, 1.6825 and 1.6700
- Above: 1.7183, 1.7228, 1.7383 and 1.7482
OANDA's Open Positions Ratio
GBP/USD is unchanged on Friday. This is consistent with the movement of the pair, as the pound is showing little movement. A significant majority of open positions in the GBP/USD ratio are short, indicative of a trader bias towards the dollar moving higher.
GBP/USD has taken a breather after posting gains in the past two days, and remains above the 1.70 level in the European session.
- 8:30 British Public Sector Net Borrowing. Estimate 11.8B. Actual 11.5B.
*Key releases are highlighted in bold.
*All release times are GMT.