The British Pound received good figures today, such as the GDP estimate, but is still bound in a range. Here are 3 things that push it up, three things that push it down, and some thoughts on what will move it away from the range – with the downside seeming more likely.
GBP/USD is trading almost perfectly between 1.5110 and 1.53. Here are some of the reasons for this see-saw:
The good:
- Economy growing – the NIESR GDP estimate pointed to a 0.4% growth rate in Q1 of 2010, which is quite good. They also revised the previous version, of the months ending in February to 0.4%.
- House prices rising: Halifax HPI showed a rise of 1.1% in house prices, better than expected (0.6%), and showing that last month’s drop was probably a one-time dip.
- Strong industry: Manufacturing Production showed a rise of 1.3%, double the early expectations. Great data indeed.
The bad:
- Rate decision: Although there were no news, the bank decided to move the next decision to after the elections. Are they delaying difficult decisions to a less sensitive period? Mervyn King wants a weak currency.
- Dollar strength: the greenback’s strength amidst the fresh global fears weighing on the dollar as well.
- Elections: The great uncertainty about the outcome of the general elections on May 6th aren’t good for the currency.
The range:
As aforementioned, GBP/USD is trading in a range. But the borders of the range aren’t equal: a little above the range – at 1.5350, the border is very tough – this is an important resistance line that holds the Pound low.
On the other hand, the bottom border, 1.5110, is just a minor resistance line. The Pound was below the bottom border less than 10 years ago, while it didn’t breach the top border in 6 weeks.
So, I tend to see a break out of the range to be downwards – below 1.5110 and towards 1.4780, the year-to-date low.
Another leap in employment could help the Pound, but employment figures are due only on April 21st. Last time they only caused a false break. Till then, the dollar’s moves will probably dominate the Pound’s trading. With its inherent weakness, I see the Pound going.
The big event that will unleash GBP/USD either up or down is the publication of the election results on May 6th. But there will sure be enough action till then.
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