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Pound Unchanged On Dovish Fed, ECB

Pound Unchanged On Dovish Fed, ECB

GBP/USD is unchanged on Friday, as the pair trades at 1.5350 in European trading. The Federal Reserve released its minutes on Thursday, which indicated that policymakers were hesitant to raise rates due to concerns that the global slowdown could affect the US economy. In other economic news, US unemployment claims were well below expectations. Later in the day, we’ll hear from two Fed FOMC members, Dennis Lockhart and Charles Evans. In the UK, Trade Balance was a disappointment, as the trade deficit jumped in August and was higher than expected.

The Federal Reserve released the minutes of its most recent policy meeting on Thursday. The minutes indicated that the Fed does not feel that the timing is appropriate for a rate hike, but provided few clues as to when the Fed might take action. Policymakers cited concerns that the sluggish global economy could affect the US economy. Last week’s dismal Nonfarm Payrolls may have been a factor in the Fed’s dovish statement, and the likelihood has risen that the Fed will not take action before 2016. Still, if the US rebounds with some strong numbers, speculation about an imminent rate hike could rise, and the dollar could benefit and move higher against its rivals.

There were no surprises from the BOE, as Thursday’s flurry of announcements were all as expected by the markets. The most important release was the decision to maintain the benchmark interest rate at 0.50%, where it has been pegged since 2009, and maintain QE levels at 375 billion pounds. The voting breakdown of the September decisions on interest rate and QE levels were also as expected. Eight MPC members voted to hold rates at 0.50%, with one member, Ian McCafferty, voting in favor of a rate increase. The vote on QE was unanimous, with all 9 MPC members voting to hold levels at 375 billion pounds per year. The UK economy has been performing well and wage growth has risen, but a rate hike in the near future remains unlikely, given the persistently weak inflation levels.

Meanwhile, the ECB summary was cautious in tone, sounding much like the Fed minutes. The Eurozone is stuck with low growth and weak inflation, but the summary indicated that there are no plans to expand the current stimulus program, at least for now. Germany, the Eurozone’s largest economy, posted disappointing manufacturing and trade balance numbers in August. These weak numbers underscore growing concern that the global slowdown is affecting Germany, and investors are nervous that a contraction in the German economy could quickly affect the rest of the bloc and send the fragile Eurozone economy into a tailspin.

GBP/USD Fundamentals

Friday (Oct. 9)

  • 8:30 British Trade Balance. Estimate GBP -10.0B. Actual -11.1B.

In August, the trade deficit narrowed to GBP 11.1 billion in August, compared to the July reading of GBP 12.2 billion. This was good news, but the August release fell short of expectations.

  • 8:30 British Construction Output. Estimate +1.0%. Actual -4.3%.

The indicator posted a sharp drop in September, nowhere near market expectations. The indicator has struggled in recent months, posting four declines in the past five releases. A weak construction sector is a cause for concern as less construction can have a ripple effect on the economy.

*Key releases are highlighted in bold

*All release times are GMT

GBP/USD for Friday, October 9, 2015


GBP/USD October 9 at 10:30 GMT

  • GBP/USD 1.5354 H: 1.5383 L: 1.5337

GBP/USD Technicals

  • GBP/USD has showed little movement in the Asian and European sessions.
  • 1.5485 is a strong resistance line.
  • 1.5341 has switched to a support role.
  • Current range: 1.5341 to 1.5485

Further levels in both directions:

  • Below: 1.5341, 1.5269, 1.5163 and 1.5026
  • Above: 1.5485, 1.5590 and 1.5660

OANDA’s Open Positions Ratio

GBP/USD ratio has showed some movement towards short positions, but long positions continue to retain a majority (54%). This is indicative of a slight trader bias towards the pound moving higher.

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