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GBP/USD holds in the 1.2450s following a benign Fed outcome

  • GBP/USD holds firm, unable to particularly relish in the Fed aftermath considering domestic sticking points, namely Brexit.
  • The Fed left the benchmark interest rate unchanged.

GBP/USD has been trading between 1.2389 and 1.2485, +0.24% on Wednesday at the time of writing following a rather benign outcome from the Federal Reserve. The Fed has left rates on hold, although vastly changed the statement. 

In a unanimous vote on Wednesday, the Federal Open Market Committee (FOMC) announced that the Fed left the benchmark interest rate unchanged within the target range of 0% – 0.25% as widely expected.

A vastly different statement from last time around states that rates will stay at the bottom until the economy is on track and how the FOMC is also committed to using its full range of tools to support the economy:

Key notes from the statement

Rates unchanged in a range of 0.00%-0.25%, as expected.

  • Fed funds rate 2-year projection vs 1.6% prior.
  • Fed funds rate 3-year projection vs 1.9% prior.
  • Fed funds rate long-term projection vs 2.50% prior.
  • Says will continue to offer large-scale overnight and term repo operations
  • Fed says rates to stay at lower bound until economy has weathered recent events and on track to achieve unemployment and inflation goals.
  • Interest on excess reserves unchanged at 0.10%.
  • Public health crisis will weigh heavily on the economy, employment and inflation in the near term.
  • Will monitor incoming information for economic outlook and public health along with global developments in setting policy.
  • Will continue buying Treasuries, agencies and commercial MBS in amounts needed.
  • Will continue to offer large-scale repos.
  • Disruptions to economic activity in US and broad have significantly affected financial conditions.

See here for the full statement

Meanwhile, Brexit is a thorn in the side for GBP bulls. UK Foreign Secretary Dominic Raab reiterated that the Brexit transition will finish at the end of this year. The net GBP positions have been falling into negative grounds for the first time since mid-December, likely attributed to Brexit fears. Additionally, “the UK’s current account deficit leaves GBP vulnerable particularly given that Brexit talks have recommenced with no signs of a breakthrough. The UK government has been criticised for a lack of testing and a slow response to the crisis,” analysts at Rabobank argue.

GBP/USD levels

 

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