Market Analysis

GBPUSD: Drops on FED Monetary Policy Statement

The Bank of England (BoE) kept the interest rate unchanged at 0.75% by a unanimous vote at its November meeting, as widely expected by market analysts. Official policymakers said that if the economy continues to develop in line with forecasts, further tightening would be appropriate. Nonetheless, the BoE maintained at £435 billion the stock of UK government bond purchases, financed by the issuance of central bank reserves.

The UK central bank lowered growth forecasts for 2018 to 1.3% from 1.4% initially estimated and lower the 2019 to 1.7% compared to 1.8%. However, it sees Inflation higher at 2.5% at the end of 2018 compared to 2.3% initially forecast in August but lower at 2.1% instead of the 2.2% in the fourth quarter of 2019.

On the other side of the Atlantic, the Federal Reserve (Fed) kept the interest rate unchanged at 2.25% during its November meeting, saying that the labour market has continued to strengthen and that economic activity has been rising at a strong rate while inflation remains near its 2% target. The Fed also reiterated its plans to continue raising rates gradually, suggesting a rate hike at its next meeting in December is likely.

Since the beginning of 2018 until last Thursday close, the GBPUSD remains negative with a loss of over 3.0% but began November above water with over 2.0% gain. Nonetheless, since the beginning of the week, it remains to gain more than 0.4% and on the daily time-frame, the currency pair closed in the red with a loss of almost 0.5%. Furthermore, the GBPUSD is in a recovery phase since early November.

During last Thursdays’ session, the currency pair dived with a wide range as the FED announced it plans to continue raising rates gradually and closed near the low of the daily range, in addition, managed to close below Wednesday low, which suggests a strong bearish momentum.

The stochastic is showing an overbought market and is beginning to display a shy bearish momentum although is still above the 50 midline.

In mid-October, the currency pair made resumed the downward trend after failing to breach and follow through the 1.3228 level. However, in late October the GBPUSD found enough support near 1.2696 to break the bearish momentum and bring out the bulls pushing it back up. Now it seems that the price of the currency pair is trapped between the 76.4 Fibonacci retracement at 1.3155 (resistance) and the 50-day moving average now at 1.3047. A break above or below this levels may set in motion the next trend.

Watch out Today: 

At 09:30 GMT (04:00 AM ET), the UK preliminary gross domestic product (GDP) is expected to rise to 1.5% year-on-year in the third quarter of 2018 compared to the 1.2% registered in the previous period. In addition, the UK preliminary gross domestic product (GDP) is expected to rise to 0.6% quarter-on-quarter in the third quarter of 2018 compared to the 0.4% registered in the previous period. The GDP is considered as a comprehensive measure of the UK economic activity. A rising trend in the GDP has a positive effect on the GBP, while a falling trend is seen as having a negative impact.

At 13:30 GMT (08:00 AM ET), The US Producer Price Index (PPI) ex Food & energy released by the Bureau of Labor statistics which is expected to be unchanged at 2.5% year-on-year in October. Changes in the PPI are widely followed as an indicator of commodity inflation. A high reading is seen as positive for the USD, while a low reading is seen as negative.

At 15:00 GMT (10:00 AM ET) The University of Michigan is releasing the preliminary consumer sentiment index for November which is expected by market analyst to be at 98.0 less than the 98.6 registered in the previous month.  This economic indicator shows a picture of whether consumers are willing to spend money and a high reading anticipates positive for the USD, while a low reading is seen as negative.


GBP/USD Daily Candlestick Chart

GBP/USD Daily Candlestick Chart


Written by Hugo O’Neill, External Analyst


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