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British Pound Falls, US Dollar Soars on Fed. Will Boris Johnson Issues Drag GBP/USD?


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BRITISH POUND, GBP/USD, US DOLLAR, FED, FOMC, YIELDS, CRUDE OIL - TALKING POINTS

  • The British Pound in under pressure, as is the British Prime Minister
  • Global equities are caught up in the risk off environment rate hikes loom
  • The fallout from the Fed continues to roil markets. Where to for GBP/USD?
Pound US dollar exchange rate: GBP slips against USD on worse-than-expected  retail sales | City & Business | Finance | Express.co.uk

The British Pound went lower again today as the US Dollar soared in the aftermath of theFederal Open Market Committee (FOMC) meeting of the Federal Reserve.

Additional uncertainty around Prime Minister Boris John Johnson’s future has been undermining Sterling. A report regarding Johnson’s behaviour during strict Covid-19 restrictions is due for release imminently. It may trigger a leadership spill.

Red ink is spilling across markets today as equities and bonds head south together. Growth and commodity linked currencies have also been hit.

The Fed gave the market the anticipated hawkishness that they were looking for and then some. The statement contained the information that had been expected, but it was the ensuing press conference that lit the fireworks.

In particular, in response to a question, Fed Chair Jerome Powell said that they would not rule out a rate hike at every meeting this year, should conditions warrant it. This pushed interest rate markets to pricing 5 hikes in 2022.

It seems that it is now certain that the Fed will stop asset purchases and lift rates at their March meeting. Uncertainty remains around the pace of tightening and when they will begin reducing the balance sheet.

Japan’s Nikkei and Korea’s Kospi indices were down over 3%, while the rest of APAC equities were lower to some degree.

The carnage in equity markets saw volatility roar higher with the VIX index remaining elevated above 30.

Crude oil made a new 6.5-year high in the North American session before easing during Asia. The Brent futures contract traded above $90 bbl while the WTI contract saw a high of $87.95 bbl.

Gold fell 1.5% on the Fed news while industrial metals have held up so far.

The 2-year Treasury yield continues its climb north, trading 13 basis points higher to be near 1.17%. Yields across the curve were all higher but most notable was the jump in real yields with the 10-year rate 10 basis points higher. Nominal 10-year Treasury yield went as high as 1.88%. G-10 government bonds are all trading at higher interest rates.

Elsewhere, New Zealand CPI came in higher than expected at 1.4% quarter-on-quarter for the fourth quarter against 1.3% expected and 5.9% for the annual year-on-year number instead 5.7% anticipated.

The RBNZ has already begun their rate tightening cycle. They don’t meet again until 23rd February. The NZ 10-year government bond went to 2.7%, its highest level since November 2018.

Despite this, the Kiwi continued lower and was the worse-performing currency today, followed by the Aussie.

The US Dollar has been the best performing currency, followed by JPY, CHF, then EUR.

US equity futures are pointing to a negative start to the US cash session.

Looking ahead, GDP, durable goods and jobs numbers will be out in the US later today.

 

GBP/USD TECHNICAL ANALYSIS

GBP/USD appears to be consolidating between the 55 and 100-day simple moving averages (SMA) for now, currently at 1.3421 and 1.3611 respectively. These levels might provide support and resistance.

Support may also be at the previous lows of 1.3431 and 1.3161 or the pivot point at 1.3375.

Resistance could be at the previous highs and pivot point of 1.3573, 1.3749, 1.3834 and 1.3913.

GBP/USD CHART

Chart created in TradingView

 

Written by Daniel McCarthy, Strategist for DailyFX.com. 27th Jan 2022

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