Cable surges on dovish Fed
The dollar has been tearing lower again on Thursday, after the Fed delivered on expectations and indicated that rate cuts are coming as early as next month.
Traders have been craving some rate cut hints from the Fed, having decided a while back that they were going to be necessary to avoid a recession. The Fed may not have delivered one yet but traders are convinced – literally, 100% priced in – that it will come next month.
Fed Interest Rate Probabilities
Source – Thomson Reuters Eikon
BoE overshadowed by leadership race
It’s not often that a central bank announcement is overshadowed by other domestic events but today is very much one of those occasions.
The Conservative leadership – and therefore Prime Minister – race has understandably stolen the spotlight in the UK this week, with the number of contenders now falling to four and that will halve again today following one final vote by MPs. The next PM will then be selected from the final two by the Tory membership over the next month, at which point attention will quickly shift back to Brexit meaning the BoE may have to get used to playing second fiddle.
The meeting today is likely to be a non-event, with the central bank currently not expected to move interest rates at all over the next year and no press conference to follow. A statement is expected to accompany the decision but we can’t expect much from that. What will be of far more interest to traders today is who will join Johnson in the final two. With Raab gone, there’s little difference between the other three remaining contenders but Hunt may be preferable being a reformed remainer that is strongly opposed to no deal. That said, Johnson will probably win the run-off anyway so it probably doesn’t actually make much of a difference.
GBPUSD pushes higher with notable resistance in focus
The rally in cable, coming after we saw divergence form on the most recent low, has brought a potentially key resistance level into focus, with 1.2750 now looking very interesting. This level provided strong resistance for the pair repeatedly since late May so a break through here could be technically very significant.
GBPUSD Daily Chart
Longer term, 1.28 looks more significant so it may not all be plain sailing above 1.2750 but it may represent a strong bullish signal for now.