Pound Unchanged As British GDP Matches Forecast

GBP/USD is almost unchanged in the Friday session. The pair, which has been quiet since mid-week, is currently trading at 1.2450. In the UK, British Second Estimate GDP for the third quarter posted a gain of 0.5%, matching the forecast. This reading was unchanged from the Preliminary GDP reading of 0.5%. Preliminary Business Investment posted a sharp gain of 0.9%, crushing the estimate of -0.2%. There are no major events in the US.

On Wednesday, the spotlight was on the UK Autumn Forecast Statement, which essentially is a mini-budget. This marked the first budget since the Brexit vote back in June. The pound has plunged 16 percent in that period, but the economy has weathered the post-Brexit period fairly well, consistently putting up numbers which have beaten expectations.

However, there are serious concerns that the actual exit from European Union will take a heavy toll on the British economy. The Autumn Statement appears to reflect these worries, as the Office for Budget Responsibility (OBR) revised downwards its growth forecasts for 2016 and 2017. The 2017 forecast was revised from 2.2% to 1.4% and the 2018 forecast from 2.1% to 1.7%. However, GDP in 2016 is expected to edge up to 2.1%, compared to the previous forecast of 2.0%. As well, the government has shelved its plan for a budget surplus in 2019-2020, saying it is aiming for a balance budget “as early as possible”.

The Federal Reserve is poised to raise interest rates by a quarter-point in December, with the odds of a rate hike at 93 percent. The Fed minutes were released on Thursday, indicating that policymakers felt it appropriate to raise rates “relatively soon”. Some members argued that the Fed needs to raise rates in December in order to preserve the bank’s credibility – despite some broad hints of rate hikes during 2016, the Fed has stayed on the sidelines throughout 2016, causing significant disappointment and frustration in the markets.

The US economy continues to post strong data and on Wednesday it was the turn of durable goods reports. Core Durable Goods Orders rose 1.0%, well above the estimate of 0.2%. Durable Goods Orders surged 4.8%, crushing the estimate of 1.2%. These strong numbers point to a welcome improvement in business investment, and strong consumer fundamentals could see business spending numbers continue to improve. There was also positive news on the consumer front, as the UoM Consumer Sentiment index climbed to 93.8, above the forecast of 91.6.

GBP/USD Fundamentals

Friday (November 25)

  • 4:30 British Second Estimate GDP. Estimate 0.5%. Actual 0.5%
  • 4:30 British Preliminary Business Investment. Estimate -0.2%. Actual 0.9%
  • 4:30 British Index of Services. Estimate 0.8%. Actual 0.8%
  • 6:00 British CBI Realized Sales. Estimate 12 points
  • 8:30 US Goods Trade Balance. Estimate -59.2B
  • 8:30 US Preliminary Wholesale Inventories. Estimate 0.3%
  • 9:45 US Flash Services PMI. Estimate 54.9

*All release times are EST

* Key events are in bold

GBP/USD for Friday, November 25, 2016

GBP/USD Chart

GBP/USD November 24 at 11:10 EST

Open: 1.2425 High: 1.2495 Low: 1.2401 Close: 1.2465

GBP/USD Technical

S1S2S1R1R2R31.21201.22721.23511.24791.26201.2778
  • GBP/USD has shown limited movement in the Asian and European sessions
  • 1.2351 is providing support
  • 1.2479 was tested earlier in resistance and is a weak line

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

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