- GBP/USD has been retreating from the highs as tension mounts ahead of the Fed decision.
- Any hint of tapering bond buys could send extend cable's downtrend, but nothing is certain.
- Wednesday's four-hour chart is painting a mixed picture.
Brexit, vaccinations, spending plans even Prime Minister Boris Johnson's scandals are all put on the sidelines – it is Fed Day. The US Federal Reserve is set to leave its policy unchanged but will have to acknowledge the improving economic environment in the US.
Since the bank's March meeting, vaccines and a massive $1.9 trillion stimulus plan have triggered a boom that is reflected in robust hiring, a pickup in inflation, a near 10% increase in retail sales and steaming hot business surveys.
Jerome Powell, Chairman of the Federal Reserve, insisted that any inflation in the spring would be transitory and stressed that 8.4 million Americans have yet to return to work. Will he stick to his guns? The Fed keeps interest rates at zero and foresees no change through 2024, while markets eye a move in 2022. The more burning question is bond buys.
Every month, the Fed creates $120 billion to purchase bonds on markets, keeping liquidity high and long-term borrowing costs lower. Before raising short-term rates, the Washington-based institution would gradually reduce its purchases – and it wants to avoid a 2013-style "taper tantrum."
Will it succeed? Powell and his colleagues can kick off such a process by signaling they would lay out a plan for tapering in June. By then, they would have more data and publish new economic forecasts. If the Fed unleashes such a hint, GBP/USD would fall sharply.
On the other hand, if he keeps his steady course and refrains from any signals, sterling would soar.
- Federal Reserve Preview: Will Powell power up the dollar? Three things to watch out for
- US Federal Reserve Meeting April Preview: Buying time before the inevitable taper
How is the pound positioned? Johnson's alleged comments of preferring "bodies piling up in the streets" over a lockdown, disagreements over the Norther Irish protocol – and the pricing of Britain's successful campaign means sterling is vulnerable. In case markets are undecided about the Fed and the dollar's direction, GBP/USD could fall while others hold their ground against the greenback.
The bias is bearish.
GBP/USD Technical Analysis
Pound/dollar has slipped below the 50 Simple Moving Average(SMA) on the four-hour chart, but it holds above the 100 and 200 SMAs. Upside momentum has disappeared, serving as another bearish sign. All in all, cable's strength is diminishing.
Support awaits at the daily low of 1.3860, followed by 1.3820, a trough from last week and then by 1.3805 and 1.3750.
Resistance is at 1.3920, the peak on Tuesday, followed by 1.3950 and the all-important 1.40 level.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
EUR/USD declines toward 1.0850 after US data
EUR/USD extends its downward correction toward 1.0850 in the American session. The US Department of Labor reported that there were 222,000 first-time application for unemployment benefits last week, helping the USD hold its ground and causing the pair to stretch lower.
GBP/USD corrects to 1.2650 area on modest USD recovery
After touching its highest level in over a month at 1.2700, GBP/USD reversed its direction and declined toward 1.2650 on Thursday. The modest USD rebound seen following Wednesday's sharp decline makes it difficult for the pair to regain its traction.
Gold aims to retest the $2,400 area
Gold advanced toward $2,400 on Wednesday as US Treasury bond yields pushed lower following the April inflation data. The recovery in US yields combined with the US Dollar's resilience after Jobless Claims data, however, causes XAU/USD to retreat toward $2,370 on Thursday.
Is the crypto bull run back? Premium
Bitcoin’s ascent to $65,000 seems to have breathed hope into the choppy crypto markets. Some altcoins have shot up 10% to 20% due to BTC’s comeback. Investors wonder if this is the resumption of the crypto bull run.
BRICS, the West and the rest – global trade hubs and de-dollarization
World trade is fragmenting into opposing blocks, warns the IMF. The BRICS and their allies are distancing themselves from the West. BRICS are attempting to de-dollarize and replace SWIFT to circumvent the threat of sanctions.