PRICES, CHARTS, AND ANALYSIS FOR GBP/USD AND EUR/GBP
- The price of cable rises when the Fed announces a moderately dovish rate hike.
- Later today, the ECB can choose among available choices.
Yesterday, the Federal Reserve Funds Rate was increased to 5.25%, the highest level since September 2007. However, new phrasing in the Fed’s post-decision statement implies that further hikes in the borrowing rate may be on hold for the time being. Chair of the Federal Reserve Jerome Powell has replaced last year’s hawkish comment that “some additional policy firming may be appropriate” with a more dovish, “patience is warranted.”
The Committee will consider the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments to determine the extent to which further policy firming may be appropriate to return inflation to 2 percent over time.
Press Release from the FOMC
Powell would never put himself in an awkward position by saying outright that the Fed was pausing its rate hikes, but his tone shift indicates that this is the most likely next step. Moreover, the next two FOMC meetings are widely expected to be relatively quiet until a new round of rate reduction is implemented.
The decline in the value of the US dollar after the FOMC meeting aided the British pound to the US dollar, sending it to a level roughly eight digits above the swing low reached on March 8th. With the 20-day moving average (dma) offering the most support, the bullish chart pattern persists, and the high of 1.2667 from late May 2022 remains the next objective. In addition, Cable is making a series of higher lows, which might provide support in the near future. In addition to Friday’s US Jobs Report (NFP), traders should keep an eye on the ECB rate decision, as a hawkish view might further weaken the US dollar.
GBP/USD DAILY PRICE CHART – MAY 4, 2023
Chart via TradingView
The direction of today’s EUR/GBP exchange rate will be determined by ECB monetary policy decisions. Although a rate increase of up to 0.5 percentage points is still possible, the market expects only a 0.25% increase. Once again, all eyes will be on the news conference following the final decision. The wording used by President Lagarde will be carefully dissected as markets speculate on whether she would announce a 25bp hawkish rise or a 50bp dovish hike. The current expectation is for the ECB to raise interest rates today by a total of little about 70 basis points.
The Euro-Pound exchange rate has not broken free of its low-volatility, two-month range of 0.8721 to 0.8925. The 200-day moving average, which is now at 0.8727, is providing additional support, despite conflicting signals from the shorter and longer time frames.
EUR/GBP DAILY PRICE CHART – MAY 4, 2023
Chart via TradingView