The GBP/USD surged 1.17% on Wednesday to close at 1.583 dollars per-British pound after the U.S. Federal Open Market Committee (FOMC) meeting, as the Fed sharply downgraded their economic forecast for this year to between 1.8% and 2%, from the previous forecast in March of between 2.3% to 2.7%. Fed Chair Janet Yellen, however, sounded hawkish at the conference as she said the rate hikes are coming. Ms. Yellen insisted the timing will be dependent on statistics in real time.

The minutes from the Bank of England's (BOE) Monetary Policy Committee meeting on June 3, released on Wednesday, showed members voted 9-0 to keep interest rates unchanged. After more than six years at a record low of 0.5%, the benchmark interest rates could stay there much longer as inflation won't return to its 2% target until the end of 2017, said the BOE.

The Bureau of Labor Statistics, the U.S. Department of Labor, said on Thursday that the May Consumer Price Index (CPI) was unchanged from a year ago, in-line with Wall Street economists, according to Reuters. The core CPI for all items less food and energy rose by 1.7% in May over the last year, missing the forecast of 1.8% on a year-on-year basis. 

The currency market was confident that the Fed’s rate hike may be off the table for now as the CPI data came in weaker than expected. The U.S. dollar index sold-off, pushing the cable above the 1.592 dollars per-British pound, before pulling back to close at 1.5879 dollars per-British pound on Thursday.

In fact, the Federal Reserve no longer emphasizes the CPI as its official 2.0% inflation target. Instead, it has adopted the personal consumption expenditures (PCE) index, particularly the core PCE with the volatile prices of food and energy stripped out. 

The Bureau of Economic Analysis (BEA), the U.S. Department of Commerce, will release the May personal income and outlays, including the PCE data, on June 25. The analysts at Bank of America Merrill Lynch expect the May core PCE price index, excluding food and energy, to increase 1.2% from a year ago, well below the Fed’s inflation target of 2.0%.

The Greek debt crisis is now in full-blown mode. Greece needs the funds to make a €1.5 billion repayment to the International Monetary Fund by June 30. On Friday, the ECB approved an increase of €1.75 billion in emergency loans to keep Greece’s banking system afloat. 

Greece's government submitted new proposals to end the deadlock over its debt crisis on Sunday, ahead of another EU leaders emergency summit, scheduled for Thursday, June 25 in Brussels. This could be the last ditch attempt to save Greece from falling into a default. Some eurozone officials believe Greek Prime Minister Alexis Tsipras may strike a deal at the summit. 

As of June 16, there are 94,725 short positions of the British Pound [CME:6B], traded on the Chicago Mercantile Exchange (CME), by asset manager/institutional and leveraged funds. This is compared to about 70,273 long positions, according to the Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC) each Friday. Net long positions have increased about 2,628 contracts from the previous week, where British Pound contracts are traded in units of 62,500 British pounds.

As we suggested on June 12, based on technical analysis, the GBP/USD was heading upward to test the upper trendline resistance of the symmetrical triangle, at the 1.562 dollars per-British pound level. The cable broke out when Fed officials, after their FOMC meeting on Wednesday, said that the U.S. economy is weaker than they thought. The GBP/USD is now trading near the head resistance level of 1.592 dollars per-British pound with the next head resistance at the 1.617 dollars per-British pound level, while the supports are between the 1.56 and 1.55 dollars per-British levels. 

The downside risks for the U.S. dollar would increase substantially if the core PCE comes in below expectations, as the Fed may not be able to hike interest rates anytime soon. The final reading of the first quarter U.S. GDP and the May personal income and outlays, including the PCE data, will be released on June 24 and June 25, respectively. There could be a dollar sell-off if Greece strikes a deal at the summit.