GBP/USD – Pound Jumps After BOE, ECB Rate Announcements

The British pound has bounced back in fine fashion against the US dollar, following major announcements by the European Central Bank and the Bank of England. After falling perilously close to the 1.60 level on Wednesday, the pound has rebounded and has gained about one cent in Thursday trading. The markets gave the thumbs as the ECB and BOE maintained their benchmark interest rates. The BOE also opted to maintain its Asset Purchase Facility (Quantitative Easing) at current levels. In the US Unemployment figures fell below expectations for the second straight release, dampening hopes that the economy would produce stronger employment numbers. There are a host of other US releases later on Thursday.

The markets gave the thumbs up to Thursday’s announcements out of Brussels and London, and both the euro and British pound took full advantage of the news, as they rallied against the US dollar. The pound is testing the 1.61 level, and has erased almost all of the losses it sustained earlier in the week. The ECB voted unanimously to maintain interest rates at 0.75%, where they have been pegged since July. The ECB decision not to reduce rates is considered a vote of confidence in the Eurozone, which continues to face difficult economic challenges. For its part, the BOE elected to maintain rates at 0.50%, where they have been since early 2009. The UK central bank also decided to maintain its Asset Purchase Facility at the current rate of 375 billion pounds. Similar to the case with the ECB, the markets were pleased that the BOE did not feel a need to resort to drastic action, either in the form of lowering interest rates or increasing QE in order to bolster the UK economy.

In the US, the employment news was disappointing, as the all-important Unemployment Claims looked sluggish. For the second week in a row, the indicator failed to meet market expectations. There were 371,000 new unemployment claims, which was substantially higher than the forecast of 361K. These weak employment numbers will likely raise concerns about the durability of the US economic recovery. Continuing with developments in the US, the fiscal cliff issue has been dormant, but could return shortly with a vengeance. Last week, the markets breathed easier as this crisis in the US was averted, with no time remaining on the clock. Congress managed to craft together a compromise which all sides could agree to, albeit with some reluctance. However, the story is by no means over, and this recent battle, which grabbed the news headlines for several weeks, appears to have just been the first round. More battles are imminent, as the hard-fought fiscal cliff deal left two critical issues – the debt ceiling and spending cuts, for another day. Democrats and Republicans are likely to tangle in Congress at the end of February, as the country reaches the $16.4 trillion debt ceiling. If the debt ceiling is not raised, the result would be the default of the US government, which undoubtedly would cause chaos in the markets. Republicans have vowed to condition raising the debt ceiling on deep spending cuts, which the Democrats strongly oppose. In March, fiscal cliff could again rear its head, as $110 billion in spending cuts will kick in if Congress cannot agree on a new budget.

GBP/USD for Thursday, Jan 10, 2013

GBP/USD Jan 10 at 16:00 GMT

1.6100 H: 1.6119 L: 1.6004

GBP/USD Technical

GBP/USD has bounced back sharply today, and is testing the 1.61 level. The pair faces resistance at 1.6135, followed by strong resistance at 1.6212. On the downside, 1.6062 is back in a support role. This line continues to strengthen as the pair trades at higher levels.

• Current range: 1.6062 to 1.6135.

Further levels in both directions:

• Below: 1.6062, 1.5975, 1.5930, 1.5850, 1.5750 and 1.5468.
• Above: 1.6135, 1.6212, 1.6273, 1.6341 and 1.6471.

OANDA Open Positions Ratios

The GBP/USD ratio is showing movement in favor of long positions. This bias has been reflected in the sharp improvement of the pound on Thursday. Will the upward trend continue? If the ratio continues to show a bias towards the longer positions, we could see the pound continue to make inroads against the US dollar.

GBP/USD continues to show volatility, following sharp losses late last week. The current trend is upwards, as both the euro and pound take advantage of dollar weakness. The pound has made impressive gains today, and is putting strong pressure on the 1.61 level. The pair has displayed some solid upward momentum, and could continue with a push above 1.61.

GBP/USD Fundamentals

• 12:00 UK Asset Purchase Facility. Estimate 375B. Actual 375B
• 12:00 UK Official Bank Rate. Estimate 0.50%. Actual 0.50%
• 13:30 US Unemployment Claims. Estimate 361K. Actual 371K
• 15:00 US Wholesale Inventories. Estimate 0.2%. Actual 0.6%
• 15:30 US Natural Gas Storage. Estimate -185B. Actual -201B
• 18:00 US 30-year Bond Auction
• 18:10 US FOMC Member Esther George Speaks
• 19:00 US FOMC Member James Bullard Speaks

*Key releases are highlighted in bold
*All release times are GMT

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