GBP/USD extended its post-Fed slide on Thursday, dropping to five-week lows by 1.3920 nL2N2NZ172 and testing daily cloud base support at 1.3918, a break of which could opens the way for further weakness.
The losses pushed the pound below key support at 1.3960, the 50% Fib of the 1.3670-1.4250 April-May rise.
If the daily cloud base breaks, support at early-May lows by 1.3803 would come into focus, raising the risk of a and a full retrace to 1.3670.
GBP/USD weakness, a knee-jerk reaction to the Fed surprise may be short-lived.
Though the pound has weakened this week pre-Fed on UK lockdown concerns, the 1-month reopening delay is likely transitory and once put in the rear-view mirror the UK COVID recovery is likely to resume.
In the aftermath of the Fed's hawkish expectations, UK and U.S. front-end rates have diverged slightly, though both hint at full 25bp hikes in the U.S. and UK in late 2022.
Sterling traders will be focused on the BoE's upcoming MPC meeting on June 24.
The Fed's willingness to reduce accommodation, albeit in 2023, may prod BoE members to join their more hawkish colleagues, Andy Haldane nL9N2M800H and Gertjan Vlieghe nL5N2NE40N and pull forward UK rate hike expectations, helping anchor cable near recent highs.
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