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Pound Gains Ground As U.S. Inflation, Jobless Claims Fall Short

By Market Pulse (Kenny Fisher)ForexJan 12, 2018 01:12AM ET
Pound Gains Ground As U.S. Inflation, Jobless Claims Fall Short
By Market Pulse (Kenny Fisher)   |  Jan 12, 2018 01:12AM ET
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The British pound has posted gains in the Thursday session, erasing the losses seen on Wednesday. In North American trade, GBP/USD is trading at 1.3549, up 0.30% on the day. In economic news, British Manufacturing Production slowed to 0.4% in November, down from 0.7% a month earlier. Still, this beat the estimate of 0.3%. Over in the US, Import Prices slowed to 0.1%, short of the estimate of 0.4%. On Thursday, the US releases PPI reports and unemployment claims.

The US dollar is under pressure, after a report on Wednesday that China was considering slowing or halting the purchase of US government bonds. China boasts the largest currency reserves, estimated at $3 trillion. It is also the biggest holder of US government bonds, in the amount of $1.19 trillion. Why would China make this move? One reason is that it may consider US treasuries less attractive compared to other assets. As well, it could be part of China’s strategy to flex some muscle as a possible trade war looms between the US and China, which are the two largest economies in the world. The report has pushed US Treasury yields higher and sent the US dollar downwards.

What can we expect from the Bank of England in early 2018? The BoE raised rates in November for the first time in 10 years, but maintained rates at the December meeting. With serious concerns about how Brexit will affect the economy, the BoE will be hesitant to raise rates, even with inflation higher than the Bank’s target of 2%. The BoE holds its next policy meeting in February, and policymakers are not expected to raise rates at that time.

Brexit negotiations have been difficult and progress has been slow, as Europe is not keen on rewarding Britain for departing the European Union. There are serious divisions within the British government with regard to the talks. and May has to walk carefully, as she has a razor thin majority in parliament, Prime Minister May can ill afford any mistakes, and if her government runs into trouble, she may be forced to call elections, which could shake up the markets and send the pound downwards. The public is almost evenly split on whether Brexit is a good idea, and there are serious concerns that the British economy will take a hit, even if a deal is worked out before the March, 2019 deadline. The parties do not have a lot of time to hammer out a host of trade issues, and all indications are that the negotiations road will be bumpy and difficult. One card that Britain may hold is that the EU, which has been united so far in its position on Brexit, may see the unified front fall apart find that some countries try to cut favorable trade deals with Britain.

GBP/USD Fundamentals

Thursday (January 11)

  • 4:30 BoE Credit Conditions Survey
  • 8:30 US PPI. Estimate 0.2%
  • 8:30 US Core PPI. Estimate 0.2%
  • 8:30 US Unemployment Claims. Estimate 246K
  • 10:30 US Natural Gas Storage. Estimate -318B. Actual -359B
  • 13:01 US 30-year Bond Auction
  • 14:00 US Federal Budget Balance. Estimate -34.5B
  • 15:30 US FOMC Member William Dudley Speaks

Friday (January 12)

  • 8:30 US CPI. Estimate 0.1%
  • 8:30 US Core CPI. Estimate 0.2%
  • 8:30 US Core Retail Sales. Estimate 0.4%
  • 8:30 US Retail Sales. Estimate 0.5%
  • 10:00 US Business Inventories. Estimate 0.3%

*All release times are GMT

*Key events are in bold

GBP/USD for Thursday, January 11, 2018

GBP/USD Chart For January 10-11
GBP/USD Chart For January 10-11

GBP/USD January 11 at 12:00 EDT

Open: 1.3507 High: 1.3551 Low: 1.3458 Close: 1.3549

GBP/USD Technical

S1 S2 S1 R1 R2 R3
1.3221 1.3402 1.3503 1.3655 1.3809 1.3901

GBP/USD was flat in the Asian session. In European trade, the pair moved lower but then reversed directions and posted gains. GBP/USD is slightly higher in North American trade

  • 1.3503 is providing support
  • 1.3655 is the next resistance line

Current range: 1.3503 to 1.3655

Further levels in both directions:

  • Below: 1.3503, 1.3402, 1.3221 and 1.3186
  • Above: 1.3655, 1.3809 and 1.3901

OANDA’s Open Positions Ratio

GBP/USD ratio is almost unchanged in the Thursday session. Currently, short positions have a majority (60%), indicative of trader bias towards GBP/USD reversing directions and moving lower.

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Pound Gains Ground As U.S. Inflation, Jobless Claims Fall Short

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Pound Gains Ground As U.S. Inflation, Jobless Claims Fall Short

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