The GBP/USD falls while the Fed keeps the rates and warns about increasing inflation and economic uncertainty

  • The Fed maintains stable rates at 4.25%–4.50%, citing greater economic uncertainty.
  • The officials highlight a solid growth and a strong labor market, but point out that inflation remains high.
  • The balance reduction will continue; The US dollar is strengthened as the feeling of risk changes after the Fed announcement.

The GBP/USD extended its losses on Wednesday after the Federal Reserve (FED) decided rates Of interest without changes as expected, with most of the looks at the press conference of the president of the FED, Jerome Powell. At the time of writing, the PAR quotes about 1,3331, lowering more than 0.20%.

The GBP/USD falls more than 0.20% to 1,3331 while traders expect Powell’s conference for clarity in politics

The Federal Reserve He voted unanimously to keep stable interest rates at 4.25%–4.50%, as expected. The Central Bank said that economic uncertainty has increased, with high risks of inflation and increasing unemployment.

The officials acknowledged that the economy continues to expand at a solid pace, supported by a resistant labor market, although they warned that inflation remains somewhat high.

As for the balance, the Fed He reaffirmed his commitment, stating: “The committee will continue to reduce its treasure holdings and debt of agencies and values ​​supported by agencies mortgages.”

GBP/USD reaction to the Fed decision

The pair GBP/USD Initially it rose to 1,3341, but as the operators would digest the statement, the dollar recovered ground, pushing the rate of down. At the time of writing, cash prices are located near the minimum daily of 1,3322, which could be tested if Powell adopts a hard line tone at his press conference.

In that case, the next key support level is the 1,3300 mark, followed by the simple mobile average (SMA) of 20 days in 1,3276. On the other hand, Powell’s Dovish approach could clear the way to 1,3400 and put into play the peak of the year to date (YTD) in 1,3443.

Fed Faqs

The monetary policy of the United States is directed by the Federal Reserve (FED). The Fed has two mandates: to achieve prices stability and promote full employment. Its main tool to achieve these objectives is to adjust interest rates. When prices rise too quickly and inflation exceeds the objective of 2% set by the Federal Reserve, it rises interest rates, increasing the costs of loans throughout the economy. This translates into a strengthening of the US dollar (USD), since it makes the United States a more attractive place for international investors to place their money. When inflation falls below 2% or the unemployment rate is too high, the Federal Reserve can lower interest rates to foster indebtedness, which weighs on the green ticket.

The Federal Reserve (FED) celebrates eight meetings per year, in which the Federal Open Market Committee (FOMC) evaluates the economic situation and makes monetary policy decisions. The FOMC is made up of twelve officials of the Federal Reserve: the seven members of the Council of Governors, the president of the Bank of the Federal Reserve of New York and four of the eleven presidents of the regional banks of the Reserve, who exercise their positions for a year in a rotary form.

In extreme situations, the Federal Reserve can resort to a policy called Quantitative Easing (QE). The 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 weapon chosen by the Fed during the great financial crisis of 2008. It is that the Fed prints more dollars and uses them to buy high quality bonds of financial institutions. The one usually weakens the US dollar.

The quantitative hardening (QT) is the inverse process to the QE, for which the Federal Reserve stops buying bonds from financial institutions and does not reinvote the capital of the bonds that it has in portfolio that they expire, to buy new bonds. It is usually positive for the value of the US dollar.

Source: Fx Street

You may also like