GBP/USD spikes to 1.3131 on Federal Reserve on hold at 1.75-2%

• The FOMC has left the rate at between 1.75-2% which is unchanged.
• The FOMC was noting that  economic growth rate is  strong and that the employment rate has stayed low.
• GBP/USD is little changed on this event and it is very little in the statement.  

There is now a 91% probability that the Fed will raise rates at its September meeting.  GBP/USD is currently trading at 1.3128 from 1.3115   and a 1.3131 knee-jerk post the announcement.

Key notes from the statement (nothing on trade tariffs):

• Unemployment rate has ‘stayed low’ versus ‘declined’.
• 12-month inflation ‘remains near’ 2% versus ‘moved close to’ 2%.
• Monpol stance remains accommodative.
• Job gains have been strong in recent months with unemployment rate staying low.
• No changes in guidance or balance of risks.
• Household spending has ‘grown strongly’ versus  spending ‘has picked up’ previously.
• Economic activity has been rising at a ‘strong’ rate versus ‘solid’ rate.

Meanwhile, GBP/USD has been pressured below the descending  resistance line that was formed from the business on the 9th July up in the 1.3360’s and capped by the 100-4hr SMA at 1.3144, making a lower high from the recovery of the channel’s lows of 1.2957 on the 19th July.    

Eyes on BoE and Brexit risks

Eyes will now turn to the BoE where  rate expectations remain firm into Thursday’s anticipated rate hike – yield spreads have been offering support. However, Brexit continues to weigh on the pound. “Brexit risk returns later this week as PM May is set to meet with French President Macron on Friday, ahead of U.K.-EU negotiations that are set to resume in mid-August,” analysts at Scotiabank explained.

GBP/USD levels

GBP/USD remains anchored by the recent ranges within the channel that remain a powerful centre of gravity. Cable has been  unable to break up out of the grip of the 10-D SMA and is capped by the 100-4hr SMA on rallies. Meanwhile, the  descending support line is located down at 1.2957 and directly below there comes the Fibonacci support at 1.2918, (50% retracement of the move up from 2016). On a break of the channel’s resistance, however, the key 1.3200 level protects  the 50-D SMA ahead of 1.3461/80 that comes before the convergence of the 200-D SMA  and 1.3597/1.3600. The 1.3708 level at the 50% Fib of 1.3040-1.4377 remains compelling on the wide.