GBP/USD drops below 1.29 as Fed called Q1 weakness ‘transitory’

GBP/USD dropped to a session low of 1.2878 and looks set to test the confluence of 5-DMA and 1-hour 200-MA around 1.2868 after Fed’s sunnier economic outlook boosted the June rate hike odds to 94%.

Expect Fed officials to begin telegraphing June rate hike

At 94%, the June rate hike odds are well above the 60% mark that Fed desires so that there is no shock to the financial markets. That said, the Fed policymakers would start telegraphing a June rate hike over the coming weeks in order to smooth the path for another 25bps move.

The big jump in the June rate hike odds is keeping the dollar well bid for now. However, the losses could be reversed if the UK services PMI due tomorrow blows past expectations.

GBP/USD Technical Levels

The spot was last seen trading around 1.2884. A break below 1.2868 (10-DMA + 1-hour 200-MA) would open up downside towards 1.28 (zero figure) and 1.2755 (Apr 21 low). On the higher side, a break above 1.2965 (Apr 28 high) could yield a quick fire rally to 1.30 (key psychological level). A daily close above the same would shake out the positional bears, thus opening doors for 1.32 (zero levels).