The U.S. central bank was able to once again inject strength into the Dollar as the dovish Fed kept rates on hold and maintained their currency pace of asset purchases. As was expected, the FOMC voted to keep short-term borrowing rates steady near zero, while continuing their asset purchase program in which the central bank buys at least $120B of bonds a month. Given the recent economic turmoil, the committee were happy to note “a moderation in the pace of recovery”, stating that “indicators of economic activity and employment have turned up recently”. Thus, the FOMC improved on their previous growth forecasts, claiming that GDP is expected to increase by 6.5% in 2021. Projections for 2022 and 2023 are for gains of 3.3% and 2.2%, before growth settles into a longer-term range of 2.3%.
GBPUSD opened the day above the 1.39 handle at 1.3911 but quickly came under significant pressure in the session, forcing the rate lower. After dropping down into the 1.38’s, Cable was able to finish the session trading at 1.3885.
GBPEUR also saw minor losses on Wednesday. The pair opened at 1.1683 and closed at 1.1665.
EURUSD traded rather flat on Tuesday, opening at 1.1907 and closing at 1.1902. After the close however, when the Fed meeting started, the pair shot up to 1.1985 but quickly deflated this morning.
The focus today will shift from the Fed to the Bank of England, as markets brace themselves for ‘Super Thursday’. Many are expecting a very positive message from the BoE thanks to Britain’s world-leading vaccine rollout and declining number of COVID-19 infections. While the BoE are set to leave rates unchanged, many are curious as to whether the central bank will comment on rising UK bond yields. As we saw with Powell and the Fed recently, a lack of action on rising bonds could push them higher which in turn would boost Sterling.
