GBP/USD: three-way business post FOMC statement, no clear signs of a Fed hike in Dec here

• As widely expected, the FOMC opted to leave the Fed funds rate in the range of 1.00% to 1.25%.
• GBP/USD catches a bid with no mention of further rate rises or changes on guidance.
• Eyes on nonfarm payrolls and BoE. 
• Odds of a Fed hike at 82 vs 81 pre-announcement.
• The 10-year yield is down about 2.5 basis points.

GBP/USD initially dropped 20 pips on the statement and then recovered to score fresh post statement highs while there was no mention of an expected rate hike in December nor any particular changes to the statement that signalled a rate rise as soon as December. The market then dropped again to challenge downside support making for three-wa price action. The 10-year yield is down about 2.5 basis points. Currently, GBP/USD is trading at 1.3274, down -0.07% on the day, having posted a daily high at 1.3322 and low at 1.3249. 

The FOMC statement came in as expected. Policy remains accommodative. The Economy will warrant gradual rate increases. The balance sheet will continue to run off. Economic activity has risen at a solid pace despite the hurricane headwinds.

FOMC statements: Comparison between September and November

Main headlines from the Fed statement:

• Economic activity rising at "solid rate" despite storms
• Labor market continues to strengthen
• Inflation remains soft even though gasoline price rises after hurricanes boosted inflation
• Measures of longer-term inflation expectations little changed
• Balance sheet taper continuing
• Household spending has been expanding at a moderate rate
• Growth in business fixed investment has picked up in recent quarters

Fed meeting: Interest rates unchanged at November meeting

All in all, there are no clear signs of a Fed Dec hike here, although odds of a Fed hike are now at 82 vs 81 pre-announcement. The Fed sound comfortable with the way the economy is performing and therefore, markets are happy with the higher probability of a Fed hike in December still. the price action shows that there is no  move away from that consensus. 

BoE in focus, see-the fact in GBP/USD? 

The focus now is on the BoE tomorrow where a rate hike is expected. However, if it is a one and done a scenario, the market might want to sell the fact considering how much is already priced into the pound. The OIS market is pricing in a 90.1% chance of a rate hike.

Analysts at TD Securities expect the Bank of England to hike Bank Rate by 25bps tomorrow; noting that this will be the MPC's first rate hike in over 10 years. In the detail, they explained that the vote is likely to be 7-2 in favour of a hike (with Ramsden dissenting, alongside one of Cunliffe or Tenreyro), though we see risks of an 8-1 or 6-3 outcome. "Our base case suggests a "sell-the-fact" reaction is likely for sterling, but a surprisingly hawkish outcome would extend its rally until focus turns to the next round of Brexit negotiations (9 Nov)," the analysts added. Also to look out for is the next round of Brexit negotiations on Nov 9th and 10th.

GBP/USD levels

While above 1.3320, the pound remains in positive territory while technicals are neutral. However, a move above the 200-D SMA at 1.3282 is needed to bring the focus back on the bid, in the short-term at least.  A break back onto the 1.33 handle opens risk towards 1.3400 if bulls can get a foothold above 1.3350 resistance, (October high and the 50% retracement at 1.3338/43). Analysts at Commerzbank argued that, while capped there, they will maintain a negative bias and target the 1.2995 2016-2017 uptrend line. "This is the breakdown point to the 1.2830 38.2% retracement and the 1.2575 50% retracement. The currency pair has recently failed at the 1.3515 2014-2017 downtrends and is thus viewed negatively," explained the analysts further.