- GBP/USD is higher but hovering just under 1.3100 amid better risk appetite pre-FOMC and BoE meetings.
- Russo-Ukraine rhetoric has been a little more constructive, lifting sentiment, and US retail sales data was weak.
Whilst pre-Fed policy announcement caution is likely preventing the pair from pushing above 1.3100 and from opening the door to a run higher towards 1.3200, GBP/USD continues to trade firmly on the front foot in the 1.3090 area. Cable is about 0.4% higher, lifted alongside a broad rebound in risk appetite on Wednesday that reflects the more constructive turn in Russia/Ukraine talks as of late, as well as the associated continued pullback in commodity prices. The latest weaker than expected US Retail Sales report likely hasn’t helped the US dollar’s case, while sterling may be continuing to derive some benefit from Tuesday’s decent UK jobs data.
Ukrainian President Volodymyr Velenskiy said on Wednesday that while more time is needed, talks with Russia were sounding more realistic and has been emphasising that Ukraine understands it cannot join NATO. Russian officials have hinted that an agreement could be near. Whether GBP/USD can sustain/extend its recent rally from weekly lows just above 1.3000 on Wednesday will depend on the upcoming Fed meeting.
The central bank is expected to lift interest rates by 25bps. The main market focus will be on the bank’s new economic forecasts and dot-plot, as well as Fed Chair Jerome Powell’s tone in the press conference. Investors are keen to measure the degree to which Powell will be willing to continue tightening policy in order to control inflation even in the face of slowing growth as a result of recent geopolitical events.
Analysts noted that pre-BoE policy announcement (on Thursday) caution as likely holding sterling back from reaping risk-on gains as strongly as some of its peers. With more twists and turns in the Russo-Ukraine story likely ahead and a barrage of incoming, GBP/USD traders will need to be on their toes.