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  • FOMC keeps monetary policy unchanged as expected.
  • Powell says soft inflation is due to temporary factors.
  • US Dollar Index advances to daily highs above 97.50.

The GBP/USD pair took advantage of the broad-based USD weakness and some positive Brexit headlines earlier in the day and rose to its highest level since April 15 at 1.3102. However, with the greenback gathering strength in the NA session on the back of FOMC Chairman Powell’s remarks, the pair erased almost all of its daily gains and was last seen trading at 1.3042, 12 pips above yesterday’s closing level.

The FOMC kept its policy rate unchanged as expected and didn’t offer any surprises in its policy statement today to force the greenback to remain under selling pressure. During the press conference, Chairman Powell dismissed the slowdown in inflation by pointing out to temporary factors. Commenting on the policy outlook, Powell said healthy GDP growth was expected in the remainder of the year and there was no strong case for a policy move in either direction.

Following a fall to a fresh two-week low of 97.15, the US Dollar Index made a U-turn on these remarks  and rose to a daily high above the 97.70 mark.

Earlier in the day, the opposition Labour party’s spokesperson said that they had seen clear evidence of the government’s willingness to explore shifts in its position on Brexit. Additionally, while speaking to the Liaison Committee, British Prime Minister Theresa May refrained from giving a deadline for cross-party Brexit talks.

On Thursday, the BoE will be publishing its policy statement and Governor Carney will be appearing at a press conference. Previewing this event, “We expect the MPC to stick to their guidance of slowly rising rates. Their confidence may even be bolstered a bit by some better-than-expected activity data, while the recent rise in oil prices is likely to have pushed the CPI forecast somewhat higher for the second half of 2019,” said Rabobank analysts.

Technical levels to consider