GBP/USD is mixed on the back of the Fed hiking rates by 25 bps as expected and offering some forward guidance that has thrown no surprises for the markets. GBP/USD is trading within a 30 pip range around the 1.28 handle.
First glance at the statement and key points via RTS:
- Fed raises target interest rate to 1.00-1.25 pct, sees one more rate hike in 2017, longer-run path unchanged
- Expects to implement its balance sheet normalization this year, initially trimming revinvestments in treasury securities by $6 bln per month and mortgage backed securities by $4 bln
- Cut to reinvestment is seen expanding on a quarterly basis until it reaches $30 bln per month for treasuries and $20 bln per month in mortgage backed securities
- Fed does not specify long run size of balance sheet, says would suspend normalization and use 'full range of tools" if economic conditions change
- Fed says near-term risks to the economy appear "Roughly balanced" but expects inflation to remain below target at 1.6 pct in near term and is monitoring developments "Closely"
- Fed sees economy, job market on more solid footing, now sees unemployment rate dipping to 4.2 pct through 2019
- Fed says household spending picked up and fixed investment has continued to expand
- Fed says for now it will reinvest principal payments from its holdings until rate normalization is well under way
- Fed vote in favor of policy was eight to 1, kashkari dissented, preferring to maintain the target range for the fed funds rate
- GBP/USD has been better bid since the CPI data that might have been the real driver for today, but we will wait and see what comes off the press conference coming up.
Yellen has a task on her hands today in the presser as the markets are waking up to the elephant in the room. Investors are concerned about the FOMC's judgment over the US economy and subsequent plans for reducing its balance sheet this year while increasing interest rates.
Live Stream | Janet Yellen speech
Similarly, after the administration of US President Donald Trump, who celebrates his 71st birthday this week, has so far not implemented any measures to support the economy and analysts at Commerzbank explained that the market has abandoned all hopes of inflation receiving a kick-start which is likely to be an important reason behind the market’s more pessimistic rate outlook.
GBP/USD levels
GBP/USD has held 1.2642/36 for the past 3 trading days and we may well see a brief extended rally towards 1.2840 ish, according to the analysts at Commerzbank. "Provided that the rally remains capped by the 20 day ma at 1.2883 the market will remain vulnerable on the downside. The previous range 1.2775-1.3060 should now act as formidable nearby resistance. We 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."
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