A lot of the action in currency markets came yesterday evening as the US FOMC made their monetary policy announcement. The statement was more dovish than the market was expecting; the Fed cut its GDP forecast to 2.1% vs. 2.3% in December as well as making other downward revisions in 2020 and 2021. They also indicated they would not hike interest rates through the rest of the year and may only look to raise rates once in 2020. It was also clear that inflation was under control, partly a result of downward pressure on oil prices. This all contributed to a dollar sell-off and GBP/USD spiked on the news, gapping through the 1.32 figure.
However, it didn’t hold on for too long as Theresa May blamed the delay to Brexit on MPs. Earlier on in the day, the PM wrote to the EU requesting a delay to Brexit until 30 June, permission of which is likely to be granted, but a short extension isn’t music to the ears of investors or traders and the pound has come under selling pressure itself.
In other news yesterday, headline UK inflation data printed slightly stronger than expected at 1.9% y/y vs. 1.8%, but it was shrugged off by a market more interested in Brexit developments and the FOMC decision that evening. The Bank of England rate announcement is due today, but with interest rates firmly expected to remain on hold, like the inflation headline yesterday, it’s likely to be have little effect on the pound.