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1 Nov 2017

GBP/USD: tables turned, back below 1.3300 in NY ahead of FOMC

  • GBP/USD loses grip on the 1.33 handle.
  • GBP/USD testing the hourly 50 SMA to the downside. 
  • Both UK and US data positive and interest rate hikes priced in. 

GBP/USD has fallen back from testing a fresh multi-week high above 1.33, when the pound was outperforming its G4 peers and strengthening against most of the G10 currencies into Wednesday’s NA open. 

Analysts at Westpac noted that UK’s stable Nationwide housing survey and a solid Markit PMI (56.3 vs exp 55.9) should not alter market expectations for tomorrow’s BoE/MPC meeting to retract their Brexit insurance 25bp rate-cut, even if the level of economic uncertainties remain high and media again highlight Chancellor Hammond’s lack of options into the Budget (22nd Nov). "Brexit negotiations are due to recommence next week and so markets are also looking for potential breaks in the current deadlock before they begin," the analysts added. 

  • Today's upbeat data help boost the case for a December Fed rate hike - ING
  • Atlanta Fed: GDPNow model forecast for real GDP growth in Q4 at 4.5%

The tables in the NY session have since turned on strong US data ahead of today's FOMC. GBP/USD dropped from 1.3320 and has hit a fresh low of 1.3248, with a look in at the 50 hourly SMA at 1.3247.  Currently, GBP/USD is trading at 1.3260, down -0.17% on the day.

The ADP report arrived at 235K and was a big beat vs the expected 200K vs the prior 110K. However, the United States ISM Manufacturing PMI came in at 58.7 below forecasts (59.5) in October. 

The ADP report seems to be a positive prelude for this week's nonfarm payrolls, which is critical considering the FOMC are under pressure to hike rates before the year is out. 

On the manufacturing data "All in all it is a very good report that suggests the sector has made an excellent start to 4Q," explained analysts at ING Bank, adding, "this should give the Federal Reserve even greater confidence that it can continue with its “gradual” pace of policy tightening. We still look for a December rate hike followed by at least two more next year, irrespective of who leads the Fed."

GBP/USD levels

While above 1.3320, the pound remains in positive territory while technicals are neutral. However, a move above the 200-D SMA at 1.3282 is needed to bring the focus back on the bid, in the short-term at least.  A break back onto the 1.33 handle opens risk towards 1.3400 if bulls can get a foothold above 1.3350 resistance, (October high and the 50% retracement at 1.3338/43). Analysts at Commerzbank argued that, while capped there, they will maintain a negative bias and target the 1.2995 2016-2017 uptrend line. "This is the breakdown point to the 1.2830 38.2% retracement and the 1.2575 50% retracement. The currency pair has recently failed at the 1.3515 2014-2017 downtrends and is thus viewed negatively," explained the analysts further.

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