GBP/USD slides further after Fed, ahead of BoE
- GBP weaker ahead of Bank of England’s decision.
- USD practically unchanged as Fed leaves policy unchanged.
- Key events ahead: BoE and decision on Fed chair, then NFP.
The GBP/USD pair dropped further after the FOMC decision and printed a fresh low at 1.3239, still remains up more than a hundred pips for the week. The pound weakened across the board during the American session as traders get ready for the Bank of England decision.
From FOMC to SuperThursday
The Federal Reserve decided to keep the Funds rate unchanged at the range 1.00-1.25% with little changes to the statement. Taking into account market reaction it was a non-event.
According to the US central bank, the balance sheet reduction was proceeding as planned and the economy has been rising at a “solid pace” despite hurricanes. The minutes will be released November 22 and the next meeting will be December 12-13. Market consensus point to a rate hike.
Regarding the Fed, an important event will take place tomorrow. US President Trump is expected to announce his nominee for the chair. Jerome Powell is the front-runner.
In the United Kingdom, Thursday will be the key day of the week. The Bank of England will announce it policy decision, release the minutes of the meeting and also publish the quarterly Inflation Report. A 25 bp rate hike is expected and that move is almost priced in. The impact on the pound is likely to depend on the perception of the future path of policy and also on the economic projections.
“As the ECB delivered a dovish tapering, the BOE can deliver a dovish hike. Through its forecasts and minutes, the MPC can suggest that this meant to take back the rate cut delivered after last years referendum. It is not the start of a tightening cycle. Sterling could be sold, but it may depend on the broader dollar direction”, warned analysts from Brown Brothers Harriman.
Technical outlook
Near the end of the session, Cable is hovering around 1.3245, with a bearish bias and 80 pips below the 2-week high it reached earlier today at 1.3320. Valeria Bednarik, Chief Analyst at FXStreet, notes that GBP/USD holds on to weekly gains but it lost upward potential ahead of October high of 1.3336, still the critical resistance to overcome to confirm a steeper advance.
“In the 4 hours chart, technical indicators head south within positive territory and coming from overbought readings, but the price holds above its 20 SMA and 200 EMA, both around the 1.3220 level. This last support will be key during the upcoming sessions, as if the price moves back below it, the risk will turn towards the downside”, Bednarik added.