The GBP/USD recovers the 1.3000 zone as the Fed indicates willingness to change rates for labor weakness

  • The GBP/USD jumped after the Fed eliminated growth projections for policy concerns.
  • The long -term inflation expectations of the FED are stagnant in 3.0%, the expectations of the FED fund rate set at 3.9%.
  • Rate markets still are likely to a rate cut in June, but hope is fading quickly.

The GBP/USD shot on Wednesday, reaching 1,2985 in intradic trade after the last decision of the Federal Reserve (Fed) was greatly presented as expected, with the Fed maintaining the stable rates at 4.5%. The markets generally anticipated another Fed pause, but they look for signs that the Fed will continue to make feats of fees if the US labor market continues to deteriorate.

According to the Fed, growth expectations for 2025 have been severely hindered by the political approach of the Trump administration to announce and then retract from commercial tariffs through publications on social networks. The Federal Open Market Committee (FOMC) cut its prognosis of the Gross Domestic Product (GDP) at the end of 2025 to only 1.7%, a strong decrease from the 2.1% forecast published in December.

Powell of the Fed: inflation is still somewhat high

The points of the interest rates also sees the interest rate at the end of 2025 stagnant at 3.9%, remaining largely unchanged from the previous policy meeting. The FOMC also decided to slow down the reduction of its balance as of April. The rates markets are still valuing better chances that the FED makes a cut of a quarterfinal in June, with the bets increasing above 60% after the president of the Federal Reserve, Jerome Powell, recognized that the weakening of growth and labor figures will be a key focus point for those responsible for the policy.

Not everything is positive in the universe of the Fed; President Powell said that US volatile tariff policies could cause an additional increase in inflation, which represents a significant risk for the Fed Plan in the future.

GBP/USD 5 minutes chart

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

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