Pound Ticks Higher, Markets Await US Nonfarm Payrolls

GBP/USD has edged higher in the Friday session, as the pair trades at 1.2480. On the release front, the spotlight is on the labor market, with three key releases – Nonfarm Payrolls, Average Hourly Earnings and the Unemployment Rate. Given the importance of these indicators, traders should be prepared for volatility in the North American session. There are no British economic indicators on the schedule.

The US will release key employment figures for October, and the strength of these numbers could affect the dollar as well as the odds of a December rate hike. The markets are expecting better numbers from all three indicators compared to the September data. Nonfarm Payrolls is expected to rise to 171 thousand, Average Hourly Earnings is forecast to edge up to 0.3% and the unemployment rate is expected to dip to 4.9%.

There were no dramatic developments at the Federal Reserve policy meeting, as the central bank maintained the benchmark interest rate at 0.25 percent. This was widely expected, given that the US election is less than a week away. Still, the Fed sent out a slightly hawkish message with regard to a December hike. The Fed statement said that the economy has improved and the employment market remains strong. The Fed also noted that inflation was moving towards its target of 2 percent. Weak inflation has long been the Achilles heel of the US economy, but this obstacle to a rate hike appears to have been removed. The policy statement hinted strongly at a December hike, noting that “the case for an increase in the federal funds rate has continued to strengthen but decided, for the time being, to wait for some further evidence of continued progress toward its objectives”. Two FOMC members voted to raise rates immediately, Fed Presidents Esther George and Loretta Mester. With a December hike currently priced at over 70 percent, market sentiment toward the US dollar should remain positive and we could see gains against other major currencies.

On Thursday, the pound recorded its strongest daily session since July, as GBP/USD has jumped 160 points. The pound responded positively to the BoE’s decision to maintain rates at 0.25 percent. The move amounts to a strong vote of confidence in the UK economy, which has weathered the Brexit vote quite well, as third quarter numbers have generally been solid. The BoE lowered rates in August and had indicated that it would make another cut in November, perhaps down to 0.10% in order to boost the economy. However, strong UK numbers and a steady improvement in inflation levels have allowed the BoE to remain on the sidelines. The Bank has essentially admitted that it was far too pessimistic about the fallout from Brexit, as the MPC has revised its forecast of economic growth. In August, shortly after the Brexit vote, the MPC forecast growth of 2.0 percent in 2016 and 0.8 percent in 2017. The new forecast says the economy will grow 2.2 percent this year and 1.4 percent in 2017.

There was dramatic news on the Brexit front on Thursday, as the High Court ruled that the government cannot invoke Article 50, the mechanism for leaving the EU, without parliamentary approval. This has raised hopes of a “soft Brexit”, whereby the exit from Europe will be less economically disruptive as the government will have to ensure that the Brexit move receives a majority from members of parliament, a majority of whom wanted Britain to remain in the EU. The government, which has indicated that it wants to invoke begin negotiations with the EU by March 2017, intends to appeal the ruling to the Supreme Court. Still, the ruling is undoubtedly a setback for the government. BoE Governor Mark Carney said that the court decision underscores that there will be “uncertainty and volatility” over the Brexit negotiations.

GBP/USD Fundamentals

Friday (November 4)

  • 8:30 US Average Hourly Earnings. Estimate 0.3%
  • 8:30 US Nonfarm Employment Change. Estimate 174K
  • 8:30 US Unemployment Rate. Estimate 4.9%
  • 8:30 US Trade Balance. Estimate -37.5B
  • 10:45 External BoE Member Kristin Forbes Speaks
  • 16:00 US FOMC Member Stanley Fischer Speaks

*All release times are EDT

* Key events are in bold

GBP/USD for Friday, November 4, 2016


GBP/USD November 4 at 7:50 EDT

Open: 1.2464 High: 1.2491 Low: 1.2448 Close: 1.2478

GBP/USD Technicals

  • GBP/USD was flat in the Asian session and has posted slight gains in the European session
  • 1.2351 is providing strong support
  • 1.2479 is under strong pressure in resistance and could break during the North American session

Further levels in both directions:

  • Below: 1.2351, 1.2272 and 1.2120
  • Above: 1.2479, 1.2620 and 1.2778
  • Current range: 1.2351 to 1.2479

OANDA’s Open Positions Ratio

GBP/USD ratio is almost unchanged on Friday, consistent with the lack of movement from GBP/USD. Currently, long positions command a strong majority (66%), indicative of trader bias towards GBP/USD breaking out and moving to higher ground.

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