Fed Holds Rates at 5.25%-5.50%, GBP/USD Volatile

Key Points

• Following Fed decisions, GBP/USD shows volatility in the 1.2700/1.2750 range.
• The US economy and labour market demonstrate strength; inflationary pressures are acknowledged.
• Federal Reserve keeps interest rates steady at 5.25%-5.50%.

The Federal Reserve’s latest policy meeting offers critical insights into the US’s monetary policy direction amidst evolving economic indicators and its implications on currency pairs, notably GBP/USD. The Fed’s decision to maintain the interest rate between 5.25% and 5.50% reflects a strategic stance to navigate the complexities of inflation control while supporting economic growth. Notably, the Federal Reserve highlighted the US economy’s resilience and the labour market’s robustness, indicating confidence in the ongoing recovery. However, the acknowledgement of incomplete efforts towards price stabilisation underlines the persistent challenges of inflation.

Monetary Outlook: 2024 Forecast Adjusted to 4.6%

The Federal Reserve’s monetary policy outlook, crucial for a balanced approach, aims at maximum employment and price stability, leveraging transitions. The decision to maintain interest rates, emphasising a data-driven approach, showcases a commitment to adapt and bolster the economy. For 2024, the monetary policy outlook’s median forecast stays at 4.6%, but for 2025, it’s up from 3.6% to 3.9%.

Economic Indicators: GDP Boost to 2.1%, Unemployment at 4.0%

Economic indicators have undergone adjustments reflecting an optimistic outlook for 2024. The GDP forecast revision to 2.1% from 1.4% signals expectations of stronger economic activity. Similarly, the anticipated fall in the unemployment rate to 4.0% from 4.1% and adjustments in the PCE Price Index and Core PCE for 2024 underscore the Fed’s responsive measures to economic developments.

GBP/USD Volatility: Trading Peaks at 1.2752

The GBP/USD performance post-Fed decision highlighted the currency pair’s sensitivity to US monetary policy changes. With daily highs touching 1.2752 and retreating to the 100-moving average at around 1.2725, the pair’s movement signals potential re-tests of daily highs, especially with dovish remarks by Fed Chair Jerome Powell. Key levels include upward resistances at 1.2823 and downward supports at 1.2713, notably the 50-SMA, marking significant transitions.

The reaction of the US 10-year Treasury Yield and the US dollar’s downward pressure following the Fed’s announcements further elucidates the interconnectedness of monetary policy decisions, bond markets, and currency valuations. This intricate dance between policy, economic indicators, and market reactions provides valuable insights for investors navigating the volatile forex landscape.