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- GBP/USD rallies back into 1.2580 after Fed slashes rate outlook, sees 75 basis points of rate cuts in 2024
GBP/USD rallies back into 1.2580 after Fed slashes rate outlook, sees 75 basis points of rate cuts in 2024
- GBP/USD rebounds from the day’s lows to chalk in a new daily high as risk appetite flares up.
- Federal Reserve sees three rate cuts next year, meeting investor expectations in the middle.
- BoE has its own final rate call of 2023 due early Thursday.
The GBP/USD rallied back into 1.2580 on reaction to the Federal Reserve’s (Fed) rate outlook for 2024. The US Dollar plunged alongside US Treasury yields, with US equities spiking as investors piled back into risk-on bets after the Fed all but formally announced that the rate hike cycle is truly over.
Fed Statement comparison: December vs November
The Federal Reserve sees three 25-basis-point rate cuts in 2024, not as many or as much as markets had been hoping for, but it significantly closes the gap between investor expectations and the Fed’s stance from its previous rate call.
Markets will now be focusing on the Fed’s press conference, headed by Fed Chairman Jerome Powell and scheduled for 30 minutes after the rate release.
The Bank of England (BoE) makes one last appearance for the year early Thursday. The UK’s central bank is broadly expected to stand pat on interest rates at 5.25% alongside the BoE’s latest Meeting Minutes and its Monetary Policy Report, all slated for 12:00 GMT Thursday.
GBP/USD Technical Outlook
The GBP/USD rallied into a fresh high for Wednesday, testing 1.2585 following the Fed rate statement, drawing the pair into near-term highs close to the 200-hour Simple Moving Average (SMA) just north of 1.2580.
Intraday action continues to cycle within familiar consolidation levels, with the GBP/USD stuck in a rough near-term channel just above the 200-day SMA, rising into the major 1.2500 price handle.
The GBP/USD remains down one and a third percent from late November’s swing high of 1.2733.
GBP/USD Hourly Chart
GBP/USD Daily Chart
Fed FAQs
What does the Federal Reserve do, how does it impact the US Dollar?
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
How often does the Fed hold monetary policy meetings?
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
What is Quantitative Easing (QE) and how does it impact USD?
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
What is Quantitative Tightening (QT) and how does it impact the US Dollar?
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
GBP/USD Technical Levels
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