GBP/USD Supported Ahead of Policy Decisions from the Fed & the BoE

  • GBPUSD
    (${instrument.percentChange}%)

Intense Central Banking Activity

The new month is off to a heated start with monetary policy at the forefront during this first week. The Reserve Bank of Australia (RBA) kicked things off today, delivering its first rate hike in more than a decade.

Focus now shifts to the US Federal Reserve and the Bank of England (BoE), which hand down their monetary policy decisions over the next couple of days, having already started their monetary tightening.

The Fed will announce its decision on Wednesday at 18:00 GMT, which will be followed by Mr Powell's press conference thirty minutes later. The Bank of England decides on Thursday at 11:00 GMT, with a press conference Governor bailey scheduled at 11:30 GMT. The bank will also release the Monetary Policy Report, which includes the updated economic projections.

US Federal Reserve

The US central bank had been viewing inflation as transitory for a long time, but was eventually forced to change tack and embark on an aggressive monetary tightening path. The latest data from the US showed that Headline Personal Consumption Expenditures rose 6.6% year-over-over-year in March, while Core PCE moderated to 5.2% year-over-year, from 5.3% prior (revised).

In March, the Fed delivered its first rate increase since late-2018, with a conservative 25 basis points adjustment, but has since been preparing markets for a larger move. Just a few days before the usual black out period, Chair Powell noted that "I would say 50 basis points will be on the table for the May meeting". [1]

After an expedited tapering process, it has also concluded it asset purchases program that caused its balance to balloon to nearly $9 trillion. The minutes form the last meeting showed that its reduction process could begin as early as in tomorrow meeting. [2]

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Bank of England

The BoE has already increased rates three times in a row and market participants now wait see if it will produce it fourth straight hike, which would make it the longest streak since 2007.

Despite the repeated actions, the central bank struck a somewhat dovish tone in the last decision in March, as the statement had noted that further modest tightening in monetary policy "may be appropriate", a departure from the prior "is likely to be appropriate" hawkish reference. [3]

The Inflation data however have continued to come in hot, as the Headline Consumer Price Index jumped 7% year-over-year in March, constituting the highest rate in the National Statistics series which began in January 1997 and the highest in historic modelled series since March 1992.

GBP/USD Analysis

The pair hit nearly two year lows last week (1.2410), due to aggressive market expectations for the Fed rate hike prospects and various risk factors. The new month started on the back foot and the British Pound is in a precarious position for further losses towards 1.2358 but a new catalyst will likely be needed for that.

On the other hand, GBP/USD finds support today and a rebound above 1.2615 could be in the cards, but it does not inspire confidence at this stage for challenging 1.2829.

In any case, the pair's trajectory will depend on the policy decisions of the two central banks, which can increase volatility and produce outsized moves.

Nikos Tzabouras

Senior Market Specialist

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 03 May 2022 https://www.youtube.com/watch

2

Retrieved 03 May 2022 https://www.federalreserve.gov/monetarypolicy/fomcminutes20220316.htm

3

Retrieved 19 May 2022 https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2022/march-2022

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