GBP/USD – Pound Drops to 4-Week Lows, Fed Statement Next

GBP/USD has posted considerable losses on Tuesday. In the North American session, GBP/USD is trading at 1.2950. On the release front, it’s another quiet day. In the US, Housing Starts and Building Permits both came in at 1.14 million, short of expectations. On Wednesday, the Federal Reserve will set interest rates and release a monetary policy statement.

The pound continues to lose ground on Tuesday, and has dropped below the 1.30 line for the first time in four weeks. GBP/USD plunged 250 points, after the release of US consumer inflation numbers, which were better than expected. CPI posted a gain of 0.2%, edging above the forecast of 0.1%. It was a similar story with Core CPI, which rose 0.3%, compared to the forecast of 0.2%. CPI was up from 0.0% in July, with the rise being attributed to higher shelter and health care costs. If inflation indicators continue to rise, there is a greater chance of a rate hike in December, and increased speculation about a Fed hike could push the greenback to higher levels. The Federal Reserve will hold a policy meeting on September 21, and a rate hike is considered extremely unlikely, with a hike priced in at just 12 percent.

All eyes will be on the Federal Reserve on Wednesday, as the bank will set interest rates and release a policy statement. Janet Yellen delivered an upbeat speech back in August, and the predictable result was increased speculation about a rate hike as early as September. However, recent economic numbers have been mixed, so the Fed is widely expected to remain on the sidelines at the Wednesday meeting and revisit monetary policy in December. The markets have priced in a September hike at just 12 percent. Still, the Fed policy statement will be closely monitored by the markets, which will be looking for hints regarding a December move. If Janet Yellen delivers a dovish message, the market’s mood could sour and the dollar could lose ground. Recent comments from FOMC members, which have been almost contradictory at times, have left the markets confused and reinforced the perception that the Fed remains divided regarding its near-future monetary policy. With the markets expecting a rate hike in the near future, greater clarity from the Fed could contribute to market stability.

GBP/USD Fundamentals

Tuesday (September 20)

  • 5:34 British 30-year Bond Auction. Actual 1.53%
  • 8:30 US Building Permits. Estimate 1.17M
  • 8:30 US Housing Starts. Estimate 1.19M

Wednesday (September 21)

  • 14:00 FOMC Economic Projections
  • 14:00 FOMC Federal Funds Rate. Estimate <0.50%
  • 14:30 FOMC Press Conference

*All release times are EDT

* Key events are in bold

GBP/USD for Tuesday, September 20, 2016

GBP/USD September 20 at 10:50 EDT

Open: 1.3039 High: 1.3064 Low: 1.2950 Close: 1.2952

GBP/USD Technical

S1 S2 S1 R1 R2 R3
1.2612 1.2778 1.2899 1.3033 1.3142 1.3219
  • GBP/USD was flat in the Asian session. The pair posted sharp losses in the European session. and is unchanged in North American trade
  • 1.2899 is providing support
  • 1.3033 has switched to a support role following sharp losses by USD/CAD in the Tuesday session

Further levels in both directions:

  • Below: 1.2899, 1.2778 and 1.2612
  • Above: 1.3033, 1.3142, 1.3219 and 1.3327
  • Current range: 1.2899 to 1.3033

OANDA’s Open Positions Ratio

GBP/USD ratio has showed slight gains toward long positions. Currently, long positions have a strong majority (65%), indicative of trader bias towards GBP/USD reversing directions and moving to higher ground.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.