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Forex pairs in this Article » GBP/USD (London) - GBP/USD has gained on the session so far, continuing this week’s mildly bullish trend. FOMC minutes from the Fed’s December meeting will be in the spotlight today, while the Bank of England rate decision announced tomorrow is almost certainly foregone conclusion. GBP/USD is currently trading at USD1.6420.

A post-QE Fed

The minutes from the December meeting will be under close scrutiny following the Fed’s decision to taper its monthly asset purchases by USD10bn. The programme remains as USD75bn a month and it is expected that the Fed will continue to taper its asset purchases at successive meetings, winding up its latest incarnation of quantitative easing by the end of 2014.

The biggest focus will be on proposed measures to replace QE. Janet Yellen, confirmed by the US Senate this week as the successor to Ben Bernanke when he stands down from the chairmanship of the Fed on 31 January, has been perhaps the biggest proponent of forward-guidance at the Fed and for increased Fed transparency.

But despite Yellen being credited with pushing for increased use of forward-guidance, the Fed’s handling of it has been shoddy at best through the last 12 months – notably with regards to the schedule for the first tapering move and the size of a Fed cut to its asset purchases.

The forward guidance issued with the Fed’s December decision thin on the ground - to keep rates lower well past the time that the unemployment rate declines below 6.5 percent. The minutes will be scrutinised for clues as to how the Fed will move to draw down rates if they begin to rise too quickly for the US economic recovery. The Fed may potentially leave the door open to the Fed paying interest on excess reserve balances (IOER) which would effectively act as a floor on the overnight rate. However such a policy move may be hampered by the Fed’s very high levels of excess reserves.

Bank of England will hold rates through 2014

The Bank of England will announce its rate decision tomorrow where it will almost certainly hold rates at 0.5 percent – a level which is expected to hold through 2014.

Mark Carney has been consistent in setting out a 7 percent unemployment threshold, below which the BoE will consider raising interest rates. UK unemployment currently stands at 7.4 percent and is forecast to dip below 7 percent before the end of the year, however Carney has stated that the 7 percent level is a threshold and not a trigger and the BoE may wait until unemployment has fallen further before it moves to hike rates from their current record-low levels.

GBP/USD mildly bullish

GBP/USD is currently trading at USD1.6420, up 0.11 percent on the session so far after an opening of USD1.6401 and down slightly on the morning’s highs of USD1.6424.
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