After rising to its highest level since the U.K. election last week at 1.2817 following the disappointing CPI report from the U.S., the GBP/USD erased all of its daily gains and is now flat at 1.2753 as the Fed’s Chairwoman Janet Yellen’s hawkish tone boosted the demand for the greenback.
The US Dollar Index rebounded strongly toward the 97 handle as Yellen undermined the recent data by arguing that it was important not to overreact to a few inflation reading and the necessary conditions were in place for inflation to rise again. Regarding the general state of the economy, Yellen said that the pickup in global growth was helping the U.S. exports and the stable labor force participation rates in recent years were a sign of improving labor conditions.
Now the FOMC is out of the way, the next critical event will take place tomorrow as the Bank of England releases minutes from its last meeting. The sustained increase seen in the inflation rate in the U.K. could reveal a hawkish tone from the BoE as well, allowing the cable to gather strength against its rivals.
Former technical resistance at 1.2690 (Fib. 38.2% retracement of mid-March – mid-May rise) can now be seen as the first support for the pair ahead of 2580 (Fib. 50%) and 1.2480 (Fib. 61.8%). On the upside, a decisive break above 1.2815/20 (daily high/Fib. 23.6%) could allow for further gains toward 1.2840 (20-DMA) and 1.2875 (50-DMA).
FOMC & Yellen headlines:
- Fed’s Yellen: We could start trimming balance sheet relatively soon
- Fed’s Yellen: I don’t think regulations have played a big role in impeding the economy
- Fed’s Yellen: We could revisit in the future the right level of its inflation target
- Fed’s Yellen: Growth has picked up somewhat, but remains low
- Fed’s Yellen: Important not to overreact to a few inflation readings; data can be noisy
- Fed’s Yellen: Fully intends to serve out term as Chair
- Fed’s Yellen: Employment is near maximum sustainable level
- Fed’s Yellen: Steady labor participation is positive
- FOMC’s decisions regarding monetary policy implementation – Jun 14, 2017
- Fed raises rates by 25 bps; second hike of 2017