GBP/USD is certainly the pair to watch at the moment as it knocks on 1.70 with some activity on both sides of the equation. The main event from overnight trade was the Fed meeting, which resulted in a broad USD pullback as traders who were positioned for a fairly hawkish Fed unwound some of their USD longs. The Fed maintained its fairly dovish tone and clearly remains quite cautious on the US economic recovery.
On the GBP side of things, it was all about the MPC minutes from the last BoE meeting. These minutes were particularly significant after Mark Carney recently said rates might be raised sooner than everyone thinks. As a result there was some anticipation that perhaps some members have already started voting in favour of a rate hike. The minutes showed that this is certainly not the case and members want to see more evidence of a recovery before pulling the trigger on rates.
Resistance at 1.70 remains in focus
Regardless, GBP/USD remained bid, also helped by USD weakness, but this 1.70 barrier is proving to be a significant challenge for the bulls. However momentum remains firmly to the upside and this week’s highs are likely to be tested again in the near term. A close above 1.70 should be enough to convince the bulls to add to longs.
Later today we have UK retail sales and CBI industrial order expectations due out. There is more data on the US side, with unemployment claims and the Philly Fed manufacturing index. While US data is always significant, I doubt this will have enough impetus to drive the greenback higher. The Fed has come out pretty definitively today and this is likely to dictate the USD’s performance in the near term.