The Fed is Unlikely to Surprise the Market

The British pound rose to a high of 1.3750 against the U.S. dollar and analysts predict that sterling will continue to outperform against other peers. One of the reasons for the pound’s strength is the vaccine rollout in the U.K. which is going better than almost anywhere else. While vaccine rollouts elsewhere are lagging, Britain has immunized around five times as many people as a proportion of its population than the European Union. Pound traders bet on a sterling comeback on the back of optimism that the economy will find its footing faster than other peers. Some analysts even predict that the pound could advance 20 percent against the euro.

Looking at the GBP/USD chart, chances are in favor of further bullish momentum with a higher target at 1.3850. For bearish momentum to gain traction we would need to see the pound declining again below 1.3630.

The EUR/USD remained trading within a relatively narrow price range between 1.2176 and 1.2107. We will now focus on price breakouts either above 1.2220 or below 1.2115 that could reinvigorate fresh momentum.

Today the focus turns to the Federal Reserve policy decision and Fed Chair Jerome Powell is expected to strike a cautious tone when it comes to curbing the Fed’s massive asset purchases, even though the economic outlook has brightened further thanks to the expected big budgetary boost from U.S. President Joe Biden. Even if some market participants may hope for a change in the Fed’s ultra-dovish policy stance, the most likely scenario is that the central bank maintains the current guidance indicating that monetary policy will remain ultra-loose for at least another year.

In other words, we do not expect any surprises at today’s decision but if the Fed sends a relatively more hawkish message, the U.S. dollar will strengthen in response.