GBP/USD pressured by the Fed hike, Brexit as always and also Italy

  • The GBP/USD is trading lower, mostly due to the strength of the US Dollar after the Fed.
  • Brexit headlines and US data are due later in the day. 
  • The technical picture is OK for the pair, despite the slide.

The GBP/USD is trading closer to 1.3100 after failing to conquer 1.3200 on Wednesday. The primary driver of the pair is the strength of the US Dollar after the Fed decision, but also concerns about Italy have some impact on cable.

The Federal Reserve raised rates as expected and also signaled another increase in December and three additional ones in 2019. The FOMC Statement included one significant change. The central bank no longer sees monetary policy as accommodative. This initially sparked a sell-off of the US Dollar as the notion was that they are nearing the end of their tightening cycle. However, Fed Chair Jerome Powell said that they did not indicate a change in policy and that financial conditions remain accommodative. The greenback recovered and extended its gains today.

Fed Quick Analysis: Removing “accommodative” is not so dovish, USD to recover?

Italy is in the limelight as the government is struggling to agree on a budget. The crisis may lead to the resignation of Finance Minister Giovanni Tria and has resulted in a damp mood in markets, also beyond Italy and the Euro. Italian headlines could continue moving the GBP/USD.

Last but not least, Brexit negotiations continue amid a disagreement over Britain’s Chequers Plan. The dispute about what to do next is also tearing the government which is split on the option of a Canada-style deal. PM Theresa May opposes such an opportunity and prefers a no-deal Brexit. Also, there are reports that the EU has stepped up its preparations for a no-deal Brexit as negotiations are stuck.

UK opposition leader Jeremy Corbyn will meet Chief EU Negotiator Michel Barnier today. The US releases final GDP data for Q2 and Durable Goods Orders for August. Both carry optimistic expectations.

GBP/USD Technical Analysis

The GBP/USD is trading below the 50 Simple Moving Average on the four-hour chart. The Relative Strength Index is slightly lower, but Momentum remains positive. The trend is not bearish.

1.3100 is not only a round number but was also a swing low last week. 1.3055 was the trough of the previous week and is strong support. 1.2970 cushioned the pair in mid-September.

1.3190 was a temporary cap for cable earlier in the week. 1.3220 was the swing high on Wednesday and also a swing high last week. The round level of 1.3300 held the pair down last week and is the highest level since July.


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