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The Federal Reserve was a critical event risk for this week with market participants anxious into the meeting.

On the initial outcome following the announcements and statement, (leaves rates unchanged, repeats that it is committed to the full range of tools) the US dollar was stabilising at the lows of the day within minutes of the announcements but has since broken to the downside.

At the time of writing, GBP/USD is trading between a range of 1.2911 and 1.2999, a five-month high.

Cable was rising ahead of the meeting on dollar weakness, approaching pre-COVID levels and is now testing the 1.3000 level.

Fed key take-aways

  • Fomc rate decision (lower bound) actual: 0.00% vs 0.00% previous; est. 0.00%.
  • Voted 10-0 for fed funds rate action.
  • Fed committed to using full range of tools to support us economy.
  • Path of economy will depend significantly on course of coronavirus outbreak.

More to come…

Meanwhile, the pound has been impressive over the past several week’s considering the uncertainty surrounding Brexit, the UK’s own epidemic and the governments bad handling of it, as well as the prospects for negative rates in the UK.

Speculative funds have been short according to the lastest CHFTC data but positions were not as shorts as they were at the beginning of June. We had seen a fall in US share market at the start of June which tends to have a negative correlation to the pound. 

However, a broad weakening on the greenback has been a major contributor to G10-FX. 

The hopes for a vaccine has fuelled optimism in the markets and news that Britain has signed a supply deal for up to 60 million doses of a possible COVID vaccine will be a positive input for selling markets in general. 

Whether the pound can maintain a bid is doubtful, however, considering Brexit uncertainty is always lurking around the corner of every rally.

The tradition period comes to an end at the turn of the New Year which makes for a probable winter of discontent for UK markets. With Brexit negotiations stuck in the mud, the other pillars of monetary policy and the UK economy could well come crashing down for the pound later this year.

GBP/USD levels