GBP/USD: Worried Fed decision weighs on investors sentiment

GBP/USD is on the back foot as the Federal Reserve’s dovish decision triggered a false break above 1.30 – as expected – and the downfall is sending the cable below the uptrend channel. Overall, there is more room to the downside than to the upside for the pair as US GDP and jobless claims are set to favour the safe-haven dollar, according to FXStreet’s analyst Yohay Elam.

Key quotes

“The Fed left its policy unchanged but painted a gloomier picture of the economy. Chairman Jerome Powell said that high-frequency data is softer since coronavirus cases increased from mid-June. Powell stressed that the Fed has lending powers but spending ones – adding on pressure for politicians to get their act together.” 

“Federal unemployment benefits are set to expire shortly with no extension or replacement agreed. Consumption – already falling – could further suffer if those out of work have fewer dollars in their pockets. Updated jobless claims figures will likely show ongoing high numbers in both initial and continuing applications, potentially pushing the safe-haven dollar higher.” 

“Markets are set to focus on the first release of second-quarter GDP – and a disaster is on the cards. While the world’s largest economy bounced back in May and most of June, the collapse in activity in April has likely left a stark mark. Economists expect a historic contraction of 34.1% annualized.” 

“The range of economists estimates is broad and implies surprises may be substantial – potentially triggering high volatility. In general, a better than predicted figure could be shrugged off as more recent data is pointing lower. Moreover, the Fed’s gloomy message is also hanging over investors’ heads – reducing any enthusiasm.”