GBP/USD Slips to $1.3620 as Traders Buckle Up for US FOMC and Fed Fund Rate 

• The GBP/USD plunged from the 1.3667 double bottom support level to the 1.3624 level ahead of FOMC and Fed fund rate.
• Fed will likely begin cutting back its asset purchases (taper) by $15 billion per month.
• On Thursday, the BoE will release its monetary policy decision.

The GBP/USD currency pair is trading with a bearish bias at the $1.3620 level ahead of US FOMC and Fed fund rate. The day before, the GBP/USD ended at $1.3614, with a high of $1.3680 and a low of $1.3605.The currency pair GBP/USD continued its decline and dropped for a third consecutive session to reach its lowest since October 13th, as the US dollar was gaining strength in the market ahead of the US Federal Reserve monetary policy meeting.

Stronger US dollar drags GBP/USD lower ahead of FOMC.

The US dollar index was strong across the market ahead of a key US event and reached 94.13, ultimately dragging the GBP/USD currency pair to the downside. Meanwhile, the Cable currency was also weak across the market and was on defensive mode as the Bank of England was also due to release its monetary policy statement this week.

On Thursday, the BoE will release its monetary policy decision, and investors are expecting that the bank might push its decision to increase interest rates to 2022, which will add pressure on the British Pound and drag GBP/USD.

GBP/USD, the currency pair moved closer to the 1.3500 level and dipped below the $1.3600 level as the broader risk-off market sentiment weighed down the riskier currency pair. European equities fell lower following the downbeat Asian Pacific session handover, which ultimately reduced the risk appetite in the market. Furthermore, looming risk events might discourage market participants from placing big bets on the GBP/USD pair later in the week. 

Refer to our trading guides to enhance your forex trading skills.

A quick economic events review 

The continued uncertainty surrounding the scenario of UK/Franc fishing negotiations and the UK/EU Northern Ireland protocol talks added pressure to the British Pound, keeping the GBP/USD pair on the downside for the third consecutive session.

On the data front, there was no economic data released from the British side. However, from the US side, at 18:10 GMT, the IBBD/TIPP Economic Optimism fell to 43.9 against the anticipated 49.3 and weighed on the US dollar, which ultimately limited the loss in GBP/USD.

US FOMC and Fed fund rate – What to look for?

According to the most recent meeting minutes, the Fed will likely begin cutting back its asset purchases (taper) by $15 billion per month. Ten billion dollars would be invested in Treasuries, with the remaining five billion dollars in mortgage-backed securities.

If the Fed quickens its pace, the dollar may benefit. However, if they do not reduce their purchases by as much, the dollar may fall.

Besides, the focus will be the pace of tapering. 

Previously, each step in the tapering was carried out following a meeting. Unlike back then, the Fed is expected to announce a strategy to cut purchases by a defined amount each month. The dilemma is if they will do it right away or wait until next month.

In general, this will have little effect. Nonetheless, economists expect the Fed to suggest that interest rates will not be raised anytime soon. One way they could accomplish this is to have a slight delay in the effective start of the taper.

FOMC and Fed fund rate – What else to expect?

Analysts believe that the US Treasury will unveil its auction program for the following months at the same time. This is concerning the ongoing debate over lifting the debt ceiling and increasing the government budget. To avoid running into the debt ceiling, the Treasury has been taking steps to reduce its issues.

The Treasury is expected to reduce bond issuance in the same way that the Fed will taper. They will declare next month that they will be selling $10 billion less in debt.

With the Treasury releasing fewer bonds and the Fed buying fewer bonds at the same price, the treasury market will be impacted. This would significantly reduce the prospect of the taper having a significant impact on bond yields.

As a result, markets are more prone to ignore the impacts.

FOMC and Fed fund rate – Summing up

There has been much excitement in the run-up to the taper. And that indicates that the markets are braced for it. If the taper occurs following expectations, which the Fed has primarily announced, there is unlikely to be a significant impact in the markets immediately. Instead, the focus will move to the timing of the rate hike.

Powell will go out of his way to reassure markets that a rate hike is still a long way off. Nonetheless, the rhetoric may contribute to the overall dovishness of the situation. Meanwhile, investors should be concerned about the budget debate in Washington – again.

GBP/USD daily technical levels

Support Resistance

1.3586 1.3661

1.3557 1.3709

1.3510 1.3737

Pivot Point: 1.3633

GBP/USD slips to $1.3620 – A quick technical outlook

The GBP/USD is trading with a bearish bias at the $1.3625 level. The direct currency pair plunged from the 1.3667 double bottom support level to the 1.3624 level. Taking a look at the recent price action, the GBP/USD’s bearish bias seems strong. Thus, it has the potential to continue trading lower until the 1.3566 support level. On a bearish side, a breakout of the 1.3566 support level could trigger a sell-off until the 1.3488 level.

In contrast, the resistance level of 1.3667 level breakout can open additional room for buying until the 1.3729 level. The RSI and MACD support a selling trend; therefore, let’s consider staying bearish below the 1.3633 pivot point and vice versa. Have a good day, and stay tuned for the following updates!