GBP/USD drops to the 1.3200 area ahead of the FOMC statement

• Pound erases UK CPI gains, turns negative versus US dollar.
• GBP/USD key levels seen at 1.3300 and 1.3180.
• Traders await the FOMC statement, its projections and Powell.

The US Dollar gained momentum during the American session amid a decline in equity prices and also ahead of the FOMC statement. GBP/USD dropped from weekly highs near 1.3285 to 1.3205, turning negative for the day.

The pound lost momentum and erased the gains that followed the release of higher-than-expected UK inflation data on European hours. Now, market participants have their attention set on the Fed.

The GBP/USD is moving sideways facing a strong resistance below 1.3300 while on the downside support is seen around 1.3180. Those two levels will likely be challenged during the next sessions.

 Fed today, BoE tomorrow

The Federal Reserve will announce its decision at 19:00 GMT. The central bank will issue the statement and economic projections. Thirty minutes later Jerome Powell will deliver a press conference.

What the FOMC decides, its projections and Powell’s comments will likely rock markets, including the US dollar.

On Thursday, market participants will learn about the decision of the Bank of England. Market consensus sees no change in rates but some speculate with a rate hike amid rising inflation and an improvement in the labor market in the UK, offset by the surge of COVID cases.  “We expect the BoE to leave policy on hold, with a message of COVID uncertainty and data dependency providing few clues to a February hike either, though they likely keep the option on the table. QE will conclude as expected this month”, said analysts at TD Securities.

Technical levels