British Pound, US Dollar, UK CPI, FOMC Minutes, GBP/USD Outlook – Talking Points
- US Dollar may rise if FOMC minutes radiate unexpectedly hawkish undertones
- British Pound could suffer from weak CPI data amid the coronavirus outbreak
- GBP/USD continues to trade inside the range-binding downtrend – what next?
APAC equities were buoyant despite the total number of coronavirus cases reaching over 75,00 and the death toll over 2,000. The anti-risk Japanese Yen was down against its major counterparts, particularly those of a cycle-sensitive nature like the commodity-linked Australian and New Zealand Dollars. News wires attributed the buoyancy to investors’ confidence that the impact of the coronavirus will not be as severe as expected.
As outlined in my US Dollar forecast, the FOMC minutes may cool 2020 Fed rate cut bets and push the Greenback higher if they reveal that Fed officials are not overly-inclined to ease credit conditions. Economic data continues to outperform relative to economists’ expectations with New York Federal Reserve President John Williams characterizing the baseline outlook as “pretty darn good”.
Fed Chairman Jerome Powell conveyed a similar message at his semi-annual congressional testimonies just two weeks ago. While he did acknowledge downside risks facing the economy – like the coronavirus – Mr. Powell reassured his political audience that the economic outlook remains favorable. The FOMC minutes may echo this same sentiment and could push the US Dollar higher if officials believe that additional rate cuts are not needed at this time.
Having said that, the text may also contain additional warnings about the growth of the so-called leveraged loan market. Rising corporate debt levels are beginning to unnerve policymakers since their durability in a downturn remains unknown. Learn more about leveraged loans and collateralized loan obligations here!
UK CPI DATA MAY PRESSURE BRITISH POUND
Core, year-on-year CPI for January is expected to show a 1.5 percent print, slightly under the prior 1.4 percent figure and well under the Bank of England’s 2-percent inflation target. Soft price growth for January could boost BoE rate cut expectations as fear about the coronavirus continues to dampen the outlook for global growth. A weaker CPI reading could re-kindle rate cut bets and pressure the British Pound.
GBP/USD PRICE CHART
Since topping in mid-December, GBP/USD has been on a steadily decline and continues to trade between the narrowing, downward-sloping resistance channel. The pair recently retreated from resistance at 1.3046 (white-dotted line), and the upcoming fundamental risks may amplify GBP/USD losses. Looking ahead, the pair may retest support at 1.2878 and could even flirt with the November-low at 1.2816.
GBP/USD – Daily Chart
GBP/USD chart created using TradingView
BRITISH POUND TRADING RESOURCES
— Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com
To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter