The Cable pair is one of the currency pairs that will be in focus as the Federal Open Market Committee (FOMC) of the US Federal Reserve Bank decides on its monetary policy direction tonight.
The GBPUSD pair has been tackling substantial difficulties as in early April, rising bond yields allowed the US Dollar to gain ground against the cable and other majors. This dollar strength soon faded when several FOMC members downplayed the possibility of an early rate hike.
Nevertheless, the Bank of Canada started tapering its QE program and this has woken the market to the possibility of similar actions from other central banks. The Fed would have to take awareness of the great improvement of the US economy. The jobs reports in the last two months have been great, PMI numbers are picking up and jobless claims are now at their lowest in one year.
Tightening must go before rate hikes, even if the Fed is cautious to start raising rates early due to inflation staying well below the flexible 2% benchmark, the bank may decide to start tapering soon, or at least to make a mention of it and provide timetable for its commencement.
This is what investors will be watching for in today’s rate statement. The FOMC Chairman’s press conference may also disclose more information in this regard, especially when providing unscripted answers to journalists’ questions.
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