It’s a big day for the cable rate as key UK economic data is released alongside a much anticipated Fed monetary policy announcement.
The morning session begins with the latest UK consumer price index reading. The report will represent May prices and will be monitored to identify whether the previous report’s uptick in inflation will be maintained. The pound just about held above $1.25 support yesterday as the Tory leadership race lost another prospect. This time Dominic Raab was the candidate let loose, putting a keen Brexiteer out of the running. The pound/dollar rate has now lost just shy of 7 cents in the last 6 weeks. While today’s inflation print, if hotter than forecast, won’t alleviate all its concerns, it will go a long way in backing up recently hawkish comments from the Bank of England that markets are under-pricing the path for interest rate rises.
The afternoon session will see a Federal Open Market Committee announcement and press conference. As mentioned in previous morning reports, the market is applying a high probability the Fed cut within the next few meetings. To be precise, there’s a 86.6% chance they lower rates by the end of July. To the average market participant this probability seems overly high. If the Fed in fact maintain their patient approach then the greenback may have considerable room to appreciate against its counterparts. If this is the case, $1.25 support on the GBPUSD rate may well be compromised. The announcement on policy action and accompanying statement will arrive at 7pm with the press conference with Jay Powell to follow at 7.30pm. If any clients exposed to the GBP/USD would like to take advantage of the price volatility which will ensue during the announcement through market orders, please let your Cornhill dealer know.
Written by Viv Savani. 8:22am, June 19th 2019
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