Buying GBPUSD amid easing Fed sentiment

02 November 2023 108
Buying GBPUSD amid easing Fed sentiment

Yesterday, the Federal Open Market Committee, which determines the central bank's policy, left the benchmark rate unchanged in a range of 5.25% to 5.5%.

 

The decision was preceded by a two-day meeting to assess changes over the past month. The result was that the regulator postponed an interest rate hike. And this stance has been maintained for the second consecutive meeting.

 

In a statement after the meeting, officials signaled that the recent rise in long-term Treasury yields reduced the incentive for a new increase, while leaving the door open for another hike.

 

Federal Reserve Chairman Jerome Powell hinted that the U.S. central bank may have completed its most aggressive rate tightening cycle in four decades.

 

Powell's gentle turnaround pleased the markets, with the S&P 500 index closing up more than 1% for the day. The 10-year U.S. Treasury yield fell below 4.75% for the first time in two weeks, continuing a move initially triggered in the morning by Treasury Department plans to slow the pace of sales of its long-term debt.

 

Futures positions estimated the probability of another rate hike at around 25%, down from around 40% a day earlier.

 

Fed Chairman Jerome Powell's assessment, and the FOMC's policy statement, generally sounded dovish. Given how officials may have interpreted positive economic data published after their September meeting, the whole thing suggests that the FOMC is inclined to go for a prolonged pause on interest rates.

 

The latest Fed estimates are putting downward pressure on the US Dollar.

 

In particular, the GBPUSD pair is particularly prone to strengthening over the next one or two months against the backdrop of its technical oversold condition.

 

Inflation remains high in Britain, which gives no reason for policy easing.

 

The Bank of England will meet today to make a decision on interest rates. Comments from Bank officials will be of primary interest here.

 

If their assessments show hawkish sentiments, it will probably push the GBPUSD pair upwards.

 

Overall Recommendation is to buy GBPUSD if the Bank of England's decision minutes leave statements about further policy tightening.

 

Profit or loss is to be taken after one month.

 

This content is for informational purposes only and is not intended to be investing advice.

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