GBP/USD jumps as Fed statement says "No rate hikes this year only one in 2020"

The dollar is on the backfoot across the board from a *dovish Fed outcome.

Key notes from the Fed:

• Federal Reserve cuts 2019 GDP forecast to 2.1% vs 2.3% in December.

The latest median Federal Reserve forecasts

• 2019 GDP 2.1% vs 2.3% in Dec.
• 2020 GDP 1.9% vs 2.0% in Dec.
• 2021 GDP 1.8% vs 1.8% in Dec.

From the statement

• On a 12-month basis, overall inflation has declined, largely as a result of lower energy prices; inflation for items other than food and energy remains near 2 percent.
• On balance, market-based measures of inflation compensation have remained low in recent months, and survey-based measures of longer-term inflation expectations are little change.
• The Committee decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent.
• The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective as the most likely outcomes. 
• In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.

 - *Overall, that's all rather dovish!

We now await Fed Powell in 30 minutes time who will host a news conference.

The Brexit saga continues

Meanwhile, the pound will remain subject to the latest developments along the Breit road map. PM Theresa May was reported sending the EU council President Tusk a letter explaining why the UK wants an extension.  According to Bloomberg , the EU was likely to say that May has to get the Brexit deal through Parliament by mid-April, otherwise the choices are a long extension into 2020 or leaving without a deal. "While May's hope is that Brexiteers and DUP will back her deal in order to get Brexit going, the risk is instead prominent Brexiteers in her Cabinet will quit and Brexiteers will make life difficult for her in Parliament (and perhaps even vote for no confidence in her)," analysts at Danske Bank argued. However, Donald Tusk’s ultimatum has dramatically telescoped events and MPs now face a choice between passing Theresa May’s deal next week, and a no-deal Brexit. "In the light of the consultations that I have conducted over the past days, I believe that a short extension will be possible, but it will be conditional on a positive vote on the Withdrawal Agreement in the House of Commons," - replied Tusk to PM May's letter. Tusk did not explicitly rule out a long article 50 extension here, but Theresa May’s comments earlier today effectively rule this out while she remains PM.

BoE expectations:

The UK will have its own central bank meeting tomorrow, combined with critical data in retail sales. Analysts at TD Securities explained that they expect the BoE to remain quiet on the sidelines Thursday as Brexit uncertainty peaks, with a unanimous 9-0 no-change policy meeting. "The economy is broadly tracking in line with their Feb forecasts. With Brexit headlines intensifying, and the FOMC tonight, markets remain fluid ahead of tomorrow's BoE meeting.":

• Rates: From a trading perspective, we remain biased towards steeper short-sterling curve (or via 1y1y vs. 3y1y GBP steepeners). We are also inclined towards fading the flattening move in the 5s30s Gilt curve.
• FX: We do not expect this month's MPC to provide GBP with a major directional push as Brexit concerns dominate.

GBP/USD levels

GBP/USD has popped the 1.32 handle, bouncing from the 21-D SMA and is back above the 23.6% retracement of the early Feb lows to recent March highs. . "The new high has been accompanied by a divergence of the daily RSI and we would allow for some near term consolidation ahead of further upside attempts. Overall target remains the 1.3574 200 week ma," analysts at Commerzbank argued.