GBP/USD: Dollar Bid Against Pound before the FOMC

The British pound is lower against the US dollar on Wednesday afternoon with all eyes focused on the monetary policy meeting of the US Federal Reserve later today. No changes to the level of US interest rates are anticipated but the central bank’s comments on the future direction of policy will be closely scrutinised.

GBP/USD was lower by 24 pips (-0.17%) at 1.3003 with a daily price range of 1.30 to 1.303 as of 1.30pm GMT. Price changes were choppy throughout the day with prices oscillating around the 1.30 psychological level.

The US dollar

The Federal Open Market Committee (FOMC) will make its decision at 19:00 GMT where it is most likely that the fed funds rate set by the central bank will stay set at the current target range of 1.50-1.75%.

With the policy on hold, markets will be judging what is said by Fed Chair Jerome Powell in his press conference after the decision on interest rates is made. Some of the key topics likely to be raised in questions include the enduring low levels of inflation, the general outlook for the US economy given the hiatus in trade tensions and any implications from the coronavirus outbreak in China.

The British pound

Foreign Exchange markets have seen a risk-off tone in the past week, meaning selling risker currencies like the pound and buying haven currencies like the US dollar. This was over fears that a virus contagion would negatively impact economic growth. Concern is warranted given that China has now reported more cases of the 2019-NCoV virus than SARS in 2003.

Nonetheless, affected currencies like the Chinese yuan and Australian dollar are off their lows. Some of this confidence to buy riskier currencies can be attributed to the idea that central banks, especially the Federal Reserve will loosen policy to adjust for any economic downturn that might be brought on by the coronavirus. That makes Fed Chair Jerome Powell’s comments on the policy-implications of the coronavirus outbreak very relevant.

Finally, in the last formality before ‘Brexit Day’ on Friday, the European parliament will vote today on the UK withdrawal agreement.

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