GBP/USD rockets to a new yearly peak ahead of 1.3300

• GBP/USD registers gains of over 0.80% following Fed’s cut.
• The Fed delivers a 50 bps rate cut as it grows confident that inflation will reach its 2% target.
• The Fed's dot-plot projects the fed funds rate to end 2024 at approximately 4.4%.

The GBP/USD hit a new yearly high of 1.3286 during the North American session after the Fed surprised the markets with a 50 bps rate cut. At the time of writing, the pair trades volatile within the 1.3200-1.3300 range as traders await Fed Chair Jerome Powell's press conference.

Fed cuts rates by 50 bps, not unanimously, as Bowman dissents

In their monetary policy statement, Fed policymakers acknowledged that economic activity continues to expand solidly, though the unemployment rate has "moved up." They also noted that while inflation "remains somewhat elevated," the Committee "has gained greater confidence that inflation is moving sustainably toward 2 percent" and believes that the risks to achieving its employment and inflation goals are now roughly balanced. The Federal Open Market Committee (FOMC) highlighted that the economic outlook remains uncertain.

The Fed's decision was not unanimous, as Governor Michelle Bowman favored a 25-basis point (bps) rate cut.

Regarding the Summary of Economic Projections (SEP), Fed officials anticipate another 50 bps of rate cuts by the end of 2024 and an additional 100 bps of cuts projected for 2025.

GBP/USD reaction to Fed’s cut

The GBP/USD extended its gains above the previous yearly peak at 1.3266, with traders eyeing 1.3300. Further upside is seen once cleared, with the next resistance lying at the March 1, 2022, high at 1.3437.