We’re not there yet, but it isn’t far away – the Federal Reserve’s FOMC is set to announce their latest policy decision in an hour’s time and market participants are adjusting their positions to cover all potential eventualities. The upshot has been that the GBP USD exchange rate has come under selling pressure this afternoon, dropping close to the 1.6000 level. This price action suggests that many investors believe that QE3 is far from a ‘done deal’. If the Fed refrains from extending QE in the States, then expect the US Dollar to make a roaring comeback, sending Cable back down into the low-1.50s from whence it came. Let’s remember, as recently as 1st June the pair was trading at 1.5268. If the downside comes, then the potential is there for us to experience a sharp correction. Elsewhere, the Swiss National Bank maintained its ultra-loose monetary policy stance earlier today, by announcing that Switzerland’s key lending rate would remain at its current level of 0.0%. It appears that the SNB is determined to deter institutional investors from parking their funds in the Alpine country. This is all part of the Swiss central bank’s plan to keep the Franc weak in an effort to boost domestic exports and keep a lid on the country’s imports. The upshot has been for the Pound to gain a third of a percentage point against the Franc, sending the GBP CHF exchange rate to 1.5146 this afternoon.

Source