GBP/USD dumps post hawkish FOMC to test bull's commitments at the key 1.33 level
|- As widely expected, the Federal Reserve Bank has hiked rates by 25bps.
- To the downside, losses 1.3300 near-term points to losses picking up more quickly.
GBP/USD has dumped to 1.3308 the low from 1.3384 the pre FOMC price with a spike in the dollar to that has rallied to 93.98 in the DXY, trading at 93.81 at the time of writing.
As widely expected, the Federal Reserve Bank has hiked rates by 25bps, but the meat on the bone for traders, ahead of the news conference with Fed Chairman Jerome Powell chalked up for 2:30 p.m., came in the Fed's updated economic projections and the new ‘dot plot' giving rise to market volatility and the hawkish notion that there will be two more rate hikes before the year is out, (Projection is for 2.4% from 2.1% last) and 3 in 2019, (3.1% from 2.9% last). (This was the second-rate hike this year and the seventh increase since the start of the tightening cycle in December of 2015).
- FOMC raises the target for Fed funds rate by 25bp to 1.75-2.00%
Meanwhile, GBP/USD walked into the NY heavy, falling from 1.3366 to 1.3308 the low after the market felt that the CPI data. CPI was slightly lower than forecasts but unchanged from April's reading and the market figured that it was not enough for the BoE to think about raising rates in August. (UK CPI came in at +2.4% YY vs 2.5% expected). With the FOMC now out of the way, with just the presser to go, attention will soon turn back to the BoE's fourth policy meeting of the year and Governor Carney's 5th annual Mansion House speech next week (June 21).
- FOMC: Median forecast of Fed policymakers is for a total of four rate hikes in 2018
GBP/USD levels
To the downside, losses 1.3300 near-term points to losses picking up more quickly, in the opinion of analysts at Scotiabank. So far, that level is holding, but only by the skin of its teeth. On a break here, eyes would be on 1.3204 recent lows of 1.3040, as the Nov 3 low. On the flipside, although not a favoured scenario given the hawkishness of this meeting, the 200-hr SMA is located at 1.3354 and the 100-hr SMA comes in at 1.3356. These guard a run to the top of the descending channel at 1.34 the figure. The double top highs of the same channel are located at 1.3420/25. Beyond there, bulls will have eyes for the 200-D SMA at 1.3594. The convergence of the 200-D SMA and 1.3583/1.3600 tops comes as the upside target while the 1.3708 level at the 50% Fib of 1.3040-1.4377 remains compelling on the wide.
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