GBP/USD downside eyes a break of 1.2720 post FOMC

Currently, GBP/USD is trading at 1.2754, up 0.00% on the day, having posted a daily high at 1.2819 and low at 1.2723.

GBP/USD has dropped from the highs post the FOMC announcements and statement. The rates were hiked as expected and the Fed pointed to more, future balance sheet changes slow & steady. The Fed delivered a 25bp hike and suggest 3% remains the long run goal. The markets were looking for differences n the statement but there were very few and the expectations for a dovish outcome were somewhat over hyped.

"In the accompanying statement, the Fed reiterated that they continue to believe “economic activity will expand at a moderate pace” with the risks to this assessment appearing “roughly balanced”. They do acknowledge the recent softness in inflation stating that it will “remain somewhat below 2% in the near term, but [will] stabilize around 2% over the medium term”. This positive assessment is borne out in their economic forecasts with 2017 GDP revised up a tenth of a percentage point to 2.2% while 2018 and 2019 were left unchanged. Unemployment forecasts were lowered, while inflation was expected to average 2% in both 2018 and 2019," explained analysts at ING.

However, the dollar has been unable to really take off on this outcome because the market is just not convinced because there are little signs of tax reform and fiscal stimulus on the horizon from Trump and inflation rates are declining rather than rising. "Markets will remain sceptical on the Fed’s assessment of the likely path of interest rates. We are still predicting an interest rate rise in September, but this will require further evidence that labour market tightness is generating higher wage growth." added the analysts.

The presser has so far not delivered anything that the statement has not already summed up and the dollar has been able to continue gaining traction throughout Yellen's comments. 1.2720 is on the cards at this rate, although the CPI misses today are an anchor on the dollar preventing the Bears from really taking off.

GBP/USD levels

On the downside, analysts at Commerzbank explained that they look for losses to extend to the 200 day ma at 1.2569 and then the 1.2468/61.8% retracement. "There is potential for the 1.2366 the 10th April low." To the upside, 1.2820 and 1.2850 are initial resistances while 1.2920 is the key target to bring the pair back into positive territory, extending the 16th May rally for eyes on 1.2975 recent highs.