GBP/USD Hovers Around 1.2750 Ahead of Fed Decision

The dollar continues to be the main driver in the currency markets as the trade-weighted index (DXY) has posted losses in 10 out of the past 11 sessions while all of the major currencies have gained against it during this time.

The greenback is weighed by a strong appetite for risk after both the US government and central bank implemented large easing measures to battle the negative impacts of the Coronavirus on the economy.

However, today’s Fed decision and press conference will reveal if policymakers have adopted a more positive stance after the labor market improved substantially in May.

A dollar recovery yesterday was short-lived as the equity markets regained upward momentum shortly after the North American open, leading to a reversal higher from intraday lows in GBP/USD to fresh highs not seen since the middle of March.

The currency pair has advanced 5.6% from its low in May. Similar to several other currency pairs, it is seen testing a significant technical area ahead of today’s Fed decision.

In addition to the Fed, the latest CPI figures will be released out of the US in early North American trading. The index fell 0.8% at the last reading which was the largest monthly decline in more than a decade.

Technical Analysis

The significance of the 1.2750 area in GBP/USD is that it held the pair higher in both the fourth quarter of 2019 and the first quarter of this year. In addition to that, it has been respected as both support and resistance dating back to 2017 on a weekly chart.

The pair has started showing signs of slowing momentum on a daily chart, although there have not been any clear indications of a turn lower.

While the pair is within a clear uptrend, buyers may see more value in the exchange rate from lower levels, especially as several of the major currency pairs are testing notable technical areas at this stage.

If GBP/USD can make a sustained break above 1.2750, it could pave the way for a move to the psychological 1.3000 price point. In the event the Fed triggers a dollar recovery, a potential downside target might be 1.2634 as the level has acted as both support and resistance as of late.

Bottom Line

• Risk appetite is the main driver of the markets, which in turn has kept the dollar under steady pressure.
• The Fed may adopt a slightly more positive outlook at their press conference today after Friday’s US jobs report showed an unexpected increase in jobs and an improvement in the unemployment rate.

For a look at all of today’s economic events, check out our economic calendar.