GBP/USD Weekly Forecast: Last Chance For Currency Volatility On FOMC Meeting

GBP/USD Holds Narrow Range as FX Volatility Drifts Lower

As FX volatility continues to dwindle, so does the excitement. The Pound largely sticking to a 1.4080-1.4200 range for much of the week and subsequently, the currency has more or less finished the week where we started. As we look ahead to next week, UK PM Johnson’s press conference on plans for the final stage of reopening the economy will be announced, and given the recent reports in UK press, it is expected that the UK will delay reopening for another 2-4 weeks. UK Covid cases are once again on the rise amid the spread of the Delta variant, however, the good news is that hospitalizations remain low, an encouraging sign that the vaccines are working.

Vaccines Effective as Delta Variant Spreads

GBP/USD Weekly Forecast: Last Chance for Currency Volatility on FOMC Meeting

Reopening Delay Unlikely to Have a Large Economic Impact

GDP figures for April beat consensus at 2.4% (2.3% expected) with the rise stemming from the outperformance in the services sector. As the UK look set to delay the full reopening of the economy, the impact is not expected to be significant (from a market perspective) and while sentiment may slightly soften on the Pound, this is expected to be temporary.

UK Data Plays Second Fiddle to FOMC Meeting

Next week, UK employment and inflation figures will be released. Although, in what has been a common theme in recent weeks, data is unlikely to stir much in the way of volatility with GBP 1W vols confirming as much, as the index slides to post-pandemic lows. That being said, the main focus will be on the FOMC monetary policy decision. The dot plots which had garnered attention in March (having been a 50/50 call of a shift towards a 2023 hike or not) is expected to shift towards a 2023 hike, and while no talk of when to start talking about tapering is expected, perhaps some subtle shifts in the statement may grab attention, particularly in light of the (expected) spike in inflation. Therefore, it will be key to watch out for any changes in the rhetoric surrounding the guidance of “SUBSTANTIAL FURTHER PROGRESS”, which has become a condition that needs to be reached before the Fed considers taper talks. The removal of the word substantial, as subtle as it may be, could be one of the first signs of gearing towards the long road of tapering assets.

1 2
View single page >> |

Disclaimer: See the full disclosure for DailyFX here.

How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.