GBP/USD has dropped ahead of the FOMC Minutes, USD spikes

GBP/USD is currently trading at 1.3159 between a range of 1.3155 the recent low and 1.3267 the day's high.

The catalyst is a widespread advance in the US dollar with the DXY spiking from 92.25 to 92.60 before extending the move in recent trade to a session high of 92.75 so far. 

There was no obvious catalyst for the initial spike, other than oversold positions at the most extreme since 2017. 

In the last moments, the result of the US 20-year bond sake was much higher than the prior, 1.185% vs 1.05%, potentially supporting the greenback when the aftermath of the auction's dust settles. 

Of late, cable has been testing territories in the 1.32's having scored a new yearly high of 1.3267 in European trade.

However, it would appear that the greenback's weakness has masked the vulnerabilities to the pound in what could be a winter of discontent if Brexit cannot be sewn up in time.

The release of the second quarter UK Gross Domestic Produce was a real eyesore and could come back to haunt the bulls should this unwind gather any momentum.

Investors will be wary over an economic crisis in the UK and vast unemployment vs inflationary pressures picking up at the same time. 

Headline UK inflation, CPI, rose to 1% in July from 0.6% in June. However, with rising fuel costs, clothing and furniture and household goods making the largest upward contribution, it does not bode well for joe public. 

FOMC Minutes eyed for insight

Meanwhile, the next risks come in the form of the Federal Open Market Committee Minutes at the top of the hour and then Friday’s UK and US PMIs will be of interest.

The minutes will be providing detail on risks and possible policy responses.

Should there be a hint of optimism, then that could continue to support the greenback in its correction if investors presume that the Fed is hinting at less stimulus.

At the July FOMC meeting, the Committee did not initiate any new policy actions and changes to the statement were minor, analysts at TD Securities notes.

While the Fed chairman did not provide any major details on the review, or forward guidance, he did suggest that the review will 'wrap up… in the near future."'

We expect the minutes to provide additional color on how those discussions are evolving.

Beyond these scheduled risks, markets will be hoping for an update of how the EU/UK trade talks have been progressing this week.

GBP/USD levels