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USD gains ground following FOMC minutes

GBP - British Pound

After making four consecutive days of gains versus the USD, Sterling fell around 1% as the USD saw strong buying following the Federal reserve’s FOMC minutes. Ahead of the announcement cable tipped 1.3267 but quickly retreated as US Fed members signalled that they will provide clearer forward guidance in the coming months.

On the UK data front, British inflation jumped unexpectedly last month to its highest since March, as clothes shops did not hold their usual Summer sales when they reopened after the coronavirus lockdown, but most economists expect it to fall again soon.

Annual consumer price inflation rose to 1.0% in July from 0.6% in June. The Office for National Statistics said, above all forecasts in a Reuters poll of economists. The news helped sterling to hold its gains against the dollar but saw some profit taking after the FOMC minutes release.

Attention now turns to this afternoon's US jobless claims number and then tomorrow's UK retail sales plus Manufacturing & services PMI from UK, Europe and the US.

Key Movers

The US Dollar was the best performer overnight, bouncing back 0.8% on the US Dollar Index after several days in the red. The catalyst for the shift in direction came from the release of the FOMC July Meeting Minutes which had a few surprising takeaways. In the first instance, there appears to be a consensus forming for further forward guidance.

The minutes note, “…providing greater clarity regarding the likely path of the target range for the federal funds rate would be appropriate at some point.” Secondly, and maybe more importantly, the Fed mentions that there is little consensus to adopt a yield curve control program and writes, “…participants judged that yield caps and targets were not warranted in the current environment but should remain an option that the Committee could reassess in the future if circumstances changed”.

Overall, the perceived small shift towards a more normalized monetary policy led to broad based US Dollar demand which saw the dollar claw back some of its more recent losses.

Expected Ranges

GBP/USD: 1.3065 - 1.3180 ▼

GBP/EUR: 1.1035 - 1.1135 ▼

GBP/AUD: 1.8245 - 1.84 ▲

GBP/NZD: 1.9975 - 2.0125 ▼

GBP/CAD: 1.7265 - 1.74 ▼