HomeContributorsFundamental AnalysisPound Looking for Direction ahead of FOMC

Pound Looking for Direction ahead of FOMC

The British pound is drifting in the Wednesday session. In North American trade, GBP/USD is trading at 1.3807, up 0.06% on the day.

FOMC minutes may be hawkish, but does it matter?

All eyes are on the June FOMC minutes, which will be released later today (18:00 GMT). The June meeting was a shocker, as the Fed abruptly moved up its timeline for rate hikes. Up until that point, the Fed insisted that the jump in inflation was transient and that it would not raise rates before 2024. At the meeting, the Fed changed course, raised its expectations for inflation and said that it expected to hike rates twice in 2023.

The minutes could well reflect the hawkish stance we saw at the June meeting, but that doesn’t mean the markets will react, given that the policy meeting took place three weeks ago. In the meantime, the June employment report showed a surge in unemployment, which climbed from 5.6% to 5.9%, as well weak wage growth. Nonfarm payrolls outperformed with strong gain of 850 thousand, but the markets appear more concerned with slack in the job market rather than higher inflation, and a taper in QE does not look likely anytime soon.

The UK economy continues to roll, with key PMIs indicating strong expansion across the economy. The June PMIs all showed strong growth, with Manufacturing PMI at 63.9, Services PMI at 62.4, and Construction PMI accelerating to 66.3 points. These figures are well above the 50-level, which separates contraction from expansion.

So far the good news. The issue which could upset the apple cart is the resurgence of Covid-19 in the UK and the concern that vaccines may not be as effective against the Delta variant. Prime Minister Boris Johnson appears determined to open the economy completely and remove all health restrictions by July 19th, but given all the ups-and-downs that the UK has faced in the Covid battle, Johnson is taking a risk that could backfire badly if Covid spreads.

GBP/USD Technical Analysis

  • There is resistance at 1.3938. Above, there is resistance at 1.4043
  • On the downside, 1.3730 is the first level of support. This is followed by support at 1.3627
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