Fed Helps GBP/USD Pair Rise to 10–Month High
The GBP/USD pair is currently trading at 1.3071, down 0.37% or $0.047. The cable is appreciably higher than the 50-day moving average of 1.289 and the 200-day moving average of 1.258. Strong bullish movements have taken place over the past 5 days starting on Friday, 21 July, through Thursday, 27 July.
The cable rallied from 1.29642 a high of 1.3149, before retreating to its current level. Short-term momentum is clearly with the sterling, thanks to a combination of on-target GDP growth, and the Fed’s outlook vis-à-vis the US economy on inflation. The GBP reached a 10-month high against the greenback before short-term profit-taking kicked in. Sellers dragged the cable down, between 1.30 and 1.31, but it is clearly short-term bullish.
How did the Fed decision impact the USD?
On Wednesday, 26 July 2017 the Fed FOMC wrapped up its 2-day meeting on interest rates and decided to maintain the status quo. The federal funds rate remains at 1.00% – 1.25%, with concerns mounting about inflation data in the US. That the FOMC (Federal Open Market Committee) stuck to its guns on the FFR did little to appease USD backers.
The DXY (US dollar index) is currently at 93.95, up 0.59% on the day. However, its 5-day performance slipped by 0.87%, for a total year to date decline of 8.23%. The general trend with the USD remains bearish. Speculators wasted no time shorting the greenback, boosting the GBP, EUR and JPY in the process.
It is worthwhile pointing out that the US dollar index is still within its 52-week high and low range (93.15 on the low end and 103.82 on the high-end). Strong moves were recorded with the EUR/USD pair which is now at 1.17 touching a high of 1.1769 on Thursday, 27 July.
For the year to date, the EUR/USD pair has rallied from a low of 1.05 to 1.17 against the greenback, and the trend continues. Other currency pairs such as the NZD/USD started the year at 0.69 and now trade at 0.7484, while the USD/CAD pair is at 1.26, down from 1.34 at the start of 2017. The USD has clearly lost ground against all major currencies in 2017, as evidenced by the 8.23% decline in the DXY.
Fed Adopts Lukewarm Outlook on US Economy
For the sterling, it’s all smiles. The year to date performance of the pound has been remarkable under the circumstances. Beset by major Brexit grievances, the sterling started 2017 at 1.23 against the dollar and is now holding firmly above the critical 1.30 support level.
It’s still early days, and currency traders are reluctant to call this the new normal, but ongoing dollar weakness and short-term GBP strength is driving trading activity.
Analysts are concerned that the USD is skating on thin ice. Phrases like facing a meaningful test, or subject to reversal are all too common nowadays. The USD is being dragged to new lows against other currencies, and is unable to maintain momentum that characterized its performance in 2015 and 2016. The Fed decision gave ammunition to USD bears since the Fed’s outlook is lukewarm.
Perhaps the reason for the rise in the sterling and the fall in the greenback is diminishing expectations for Trump Trade. The president’s promises are proving difficult to fulfill, and market fatigue is starting to creep in.
Equities markets remain bullish however, but it’s the GBP and the EUR that are hitting new highs while the beleaguered greenback marches into the sunset the decreased likelihood of a rate hike on Wednesday, 13 December 2017 means that expectations for the greenback are muted for now. This led to a large USD selloff in markets, especially against its major trading partners.
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About Brett Chatz
Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise in online trading for iForexTrader.co.uk.