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GBP/USD: posting fresh highs after dovish FOMC minutes

  • GBP/USD makes a fresh high of 1.3312 post FOMC minutes.
  • Many participants observed that weak inflation could prove persistent.
  • Shift toward a more constructive tone of Brexit negotiations underpins upside.

GBP/USD is trading at 1.3301, up 0.51% on the day, having posted a daily high at 1.3312 and low at 1.3213.

Sterling has made seven consecutive sessions of gains while Brexit developments have underpinned improved sentiment an the FOMC minutes came with a dovish tint:

Key headlines from FOMC minutes

  • A few opposed near term hike on weak inflation outlook.
  • Meeting included broad inflation debate.
  • A few participants said rate hike should be delayed until data showed inflation was clearly on a path to 2%.
  • "Many participants" observed that weak inflation could prove persistent and may reflect drop in inflation expectations.
  • Some worried Fed could undercut inflation expectations by hiking with inflation below target.
  • 'A couple' participants discussed alternative frameworks for inflation, like price-level targeting.
  • Most participants continue to believe tighter labor market will ultimately lead to inflation.
  • May said employment is at or close to full employment.

UK budget: every little helps?

"As expected, Chancellor Hammond delivered a budget with few major changes but a wealth of incremental measures. This doesn't change materially the outlook for the UK economy; growth is set to remain fairly sluggish and hampered by Brexit uncertainty," explained analysts at ING Bank.

Elsewhere, the DXY is - 0.49% at the time of writing at 93.51 of a range between 93.496 - 93.962 ahead of the FOMC minutes. Also, the much weaker-than-expected US durable goods orders data was a further weight to the dollar that came in as a monthly contraction of 1.2% for October vs the expected +0.3%.

GBP/USD levels

Analysts at Comerzbank explained that above 1.3343 (50% retracement) would trigger a deeper recovery to potentially 1.3417/1.3515, the 61.8% and the 2014-2017 downtrend. 

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