• GBP/USD traded 0.25% lower following the Federal Reserve.
• Sterling continues to face very large and very binary risks.

GBP/USD is trading between 1.2438 and 12506 on the day that the Federal Reserve met market expectations by cutting interest rates by 0.25% and leaves the door open for more cuts along the way. 

"Today’s rate cut was widely expected as the Fed continues its “mid-cycle” policy adjustment. "The key question is how much further that adjustment, framed as insurance against risks from trade tensions and slowing global growth, will go," analysts at RBC Economics explained:

"The clearest indication should come from the dot plot—it shows a median of no further cuts (or hikes) through the end of next year. But that masks significant divergence among committee members with seven expecting one more cut this year, five looking for no change, and five thinking a rate hike would be appropriate by year end. Lack of consensus might explain why the policy statement was little changed, simply reiterating that the Fed will “act as appropriate to sustain the expansion.”

Another Brexit deadline looms next month

The Brexit end-point remains broadly unchanged from where it was in August. Both a deal and no deal are possible at the end of October, as is a Corbyn government by year-end.

"We are hopeful of a positive outcome but we continue to advise those with notable GBP exposures to examine their hedging policies. In particular, entities with significant exposure to GBP assets or net receivables may wish to maintain higher hedge ratios in the months ahead. The risk of a No Deal crash out may have diminished in recent weeks, but it has certainly not disappeared," analysts at TD Securities explained.
 

GBP/USD levels

Technically, GBP/USD is on the verge of breaking the trendline support. "Minor support below the 55-day moving average and the September 12 low at 1.2300/1.2283 is seen between the early and mid-August lows at 1.2080/15 and major support at the 1.1958 current September low," analysts at Commerzbank explained