The British pound continues to post gains against the retreating dollar. GBP/USD is trading slightly below the 1.57 line in North American trading on Wednesday. In economic releases, UK Public Sector Net Borrowing looked good, as the indicator pointed to the first surplus in six months. CBI Industrial Order Expectations continues to improve, and pushed out of negative territory with a zero reading. In the US, Existing Home Sales jumped sharply and the FOMC will release the minutes of the previous policy meeting.
There was more good news from the UK economy on Wednesday. Public Sector Net Borrowing improved sharply, posting its first surplus since February, with a reading of -1.6 billion pounds. However, this fell short of the market estimate of -3.7 billion. Meanwhile, CBI Industrial Order Expectations, which has been mired in deep negative territory, climbed to the zero level. This easily beat the estimate of -8 points. The improving releases out of the US have buoyed the pound, which has climbed to it highest levels against the US dollar since mid-June. There was good news out of the US today as well, as Existing Home Sales jumped from 5.08 to 5.39 million, its highest level since June 2010.
There has been plenty of speculation about when the Federal Reserve will scale back its QE program. Currently, the Fed is purchasing $85 billion in assets every month, and Fed chair Bernard Bernanke has indicated that the Fed plans to taper QE if the US economy continues to improve. However, Bernanke has been vague about when the Fed might act, leading to speculation and uncertainty in the markets. There has been talk about the Fed tapering QE as early as September and the release of the FOMC minutes on Thursday could shed some light on the Fed’s intentions. Since tapering QE is a dollar-positive event, any hints in the minutes about scaling back QE could boost the US dollar.
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GBP/USD August 21 at 15:40 GMT
GBP/USD 1.5680 H: 1.5701 L: 1.5651
GBP/USD continues to post gains on Wednesday. The pair was quiet in the Asian session and consolidated at 1.5660. GBP/USD edged higher in the European session and briefly crossed above the 1.57 line. The pair faces resistance at 1.5756. This line has remained intact since February. The next line of resistance is at 1.5877.
On the downside, the GBP/USD is receiving support at 1.5645. This is not a strong line, and could face pressure if the pound retracts. This is followed by a strong support level at 1.5527.
- Current range: 1.5645 to 1.5756
- Below: 1.5645, 1.5527, 1.5432, 1.5309 and 1.5203
- Above: 1.5756, 1.5877, 1.6000 and 1.6071
The GBP/USD ratio has an overwhelming majority in favor of short positions, which outnumber long positions by almost 3:1. This reflects a strong bias in favor of the US dollar reversing direction and moving higher.
The pound continues to move higher against the US dollar and has gained over two cents in the past week. Will this rally continue? We could see some volatility as the US releases the minutes of the FOMC’s most recent policy meeting.
GBP/USD Fundamentals
- 8:30 British Public Sector Net Borrowing. Actual -1.6B. Estimate -3.7B.
- 10:00 British CBI Industrial Order Expectations. Actual 0 points. Estimate -8 points.
- 14:00 US Existing Home Sales. Estimate 5.39M. Actual 51.5M points.
- 14:30 US Crude Oil Inventories. Estimate -1.6M. Actual -1.4M.
- 18:00 US FOMC Meeting Minutes.