- GBP/USD pops on dovish Powell and targets test of 1.2850.
- Powell emphasised that rates are just below the neutral range and that there is no clear rate path.
- BoE Carney figures the pound could be down by 25% on a Cliff Edge (no deal) Brexit.
The dollar is weaker and GBP/USD has popped following the release of Federal Reserve’s Powell’s speech that he is making a speech to the Economic Club of New York where he has emphasised that rates are just below the neutral range and that there is no clear rate path.
- Breaking News: USD falls sharply as Fed’s Powell says policy rate is ‘just below’ estimates of neutral
- Fed’s Powell: No pre-set policy path; paying ‘very close attention’ to data
Powell also stated that the Fed is paying very close attention to data, (and considering the recent spanners thrown in the works there, that is also dollar negative at this juncture).
After today’s US GDP data that arrived as expected, Joseph Trevisani, Senior Analyst at FXStreet, explained that US economic growth in Q3, confirmed at 3.5% was never the problem:
“It’s the slope down to 2.5% in Q4 and beyond that should worry the Fed. Whether rate increases are the cause is debatable, but the governors do not want to be blamed for a return to the post-recession doldrums.”
On the 21st November, Joseph argued that the lack of business investment in capital goods for the third straight month was a warning that despite the 3% expansion in the US, there are enough gathering headwinds to make business cautious – “Particularly trade disputes and concerns on growth in Europe the UK and China.”
Should the Fed be taking the same view as the street of late, that there are indeed mounting headwinds ahead for the US economy, that shifts the goal posts and should leave the dollar under pressure – especially with the concerns that Powell has voiced again over leveraged borrowing which could exacerbate an economic downturn.
BoE Carney figures the pound could be down by 25% on a Cliff Edge (no deal) Brexit
BoE’s Carney: UK not fully prepared for a cliff-edge Brexit
Meanwhile, we also have BoE governor Carney making his presentation of the financial stability report and Brexit analyses. The BoE’s worst case Brexit scenario would lead to an 8% fall in GDP in the short term, unemployment of 7.5%, inflation at 6.5%, house prices down 30% and a 25% fall in the pound – (At current rates,1.2800, that would put GBP/USD below parity to 0.9600). Carney has emphasised that the UK is not fully prepared for a Cliff Edge (no deal) Brexit and that the UK needs a Brexit transition period.
At the time of writing, GBP/USD would likely be lower following Powell’s dovish speech if it wasn’t for the doom and gloom in Carney’s worst-case scenario. The DXY is down a whopping 68 points.
GBP/USD levels
- Pivot point support levels: 1.2704, 1.2667 and 1.2610.
- Pivot point resistance levels: 1.2856 and 1.2893.
GBP/USD remains submerged below some key moving averages on the daily sticks but is breaking back through the 10, 21 and 50 4hr SMAs and is back in bullish territory. RSI is now bullish across multiple time frames and the 4hr DMIs back the bid as well. Cable has now broken 1.28 the figure that will likely open the way to 1.2850 and 1.2880 at this juncture where initial tests will probably find strong resistance, at least until the fundamental landscape switches over in favour of the upside considering the mounting Brexit risks.
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