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By Kenny Fisher

After an uneventful start to the week, GBP/USD sustained sharp losses on Wednesday. The pair has dropped more than 100 points, as it trades just shy of the 1.67 line the North American session. The pound sagged after the BOE sharply downgraded its forecast for wage growth. Meanwhile, Claimant Count Change posted another strong reading in July. In the US, Core Retail Sales and Retail Sales softened in July.

The pound hit a brick wall on Wednesday, as the BOE lowered its forecast for wage growth in its inflation report. The central bank said that it expects wages will rise in Q4 by 1.25%, compared to the 2.5% forecast in May. This has caused the markets to scale back expectations of a rate increase anytime soon, and the pound dropped sharply as a result. With the British economy growing and unemployment falling, speculation was rampant that a rate hike was possibly around the corner. However, the Achilles heel in this view has been weak wage growth, which was underscored by a drop of 0.2% in Average Earnings Index in July, the indicator's first decline in over five years. BOE Governor Mark Carney added salt to the wound at a press conference on Wednesday, when he stated that any interest rate would be "slow and small". The result was a backlash from the markets as the pound shed over 100 points.

Overshadowed by the BOE Inflation Report was another strong performance by Claimant Count Change. The key indicator came in at -33.6 thousand, beating the estimate of -29.7 thousand. The unemployment rate fell for a fifth consecutive month, dipping to 6.4%, compared to 6.5% a month earlier. This matched the forecast.

In the US, employment indicators are under the market microscope, as the strength of the labor market is one of the most important factors influencing the Federal Reserve regarding the timing of an interest rate hike. A rate hike is expected by mid-2015, but stronger economic data, especially on the employment front, could hasten a rate move. There was positive news on Tuesday, as JOLTS Job Openings continued to improve and climbed to a 13-year high. We'll get a look at Unemployment Claims on Thursday.

GBP/USD for Wednesday, August 13, 2014

GBP/USD August 13 at 16:05 GMT

GBP/USD 1.6696 H: 1.6842 L: 1.6686

GBP/USD Technical

S3 S2 S1 R1 R2 R3
1.6382 1.6484 1.6565 1.6700 1.6825 1.6920

  • GBP/USD lost ground in the Asian session, but reversed course and has moved higher in the European and North American session. The pair has pushed above the 1.68 line as the dollar remains under pressure.
  • The round number of 1.67 is providing strong support.
  • 1.6825 is an immediate resistance line and could break during the day. 1.6920 is stronger.
  • Current range: 1.6700 to 1.6825.

Further levels in both directions:

  • Below: 1.6565, 1.6484, 1.6382 and 1.6251
  • Above: 1.67, 1.6825, 1.6920, 1.7000 and 1.7183

OANDA's Open Positions Ratio

GBP/USD is pointing to gains in short positions in Wednesday trade. This is consistent with the movement of the pair, as the pound has posted sharp losses. The ratio is evenly split between open long and short positions, indicative of a lack of trader bias regarding the pair's future movement.

GBP/USD Fundamentals

  • 8:30 British Average Earnings Index. Estimate -0.1%. Actual -0.2%.
  • 8:30 British Claimant Count Charge. Estimate -29.7 thousand. Actual -33.6 thousand.
  • 8:30 British Unemployment Rate. Estimate 6.4%. Actual 6.4%.
  • 9:30 BOE Inflation Report. BOE cuts wage growth from 2.5% to 1.25%.
  • 9:30 BOE Governor Mark Carney Speaks. Carney said rate increases will be "slow and small".
  • 13:05 FOMC Member William Dudley Speaks.
  • 14:00 US Business Inventories. Estimate 0.4%. Actual 0.4%.
  • 14:30 US Crude Oil Inventories. Estimate -0.8M. Actual 1.4M.
  • 17:01 US 10-year Bond Auction.

* Key releases are highlighted in bold

*All release times are GMT

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.

Source: GBP/USD - Pound Slides As BOE Dampens Rate Expectations