The GBPUSD exchange rate retreated from previous highs amid a market selloff and renewed supply for the US dollar after the Federal Reserve said it would keep its key interest rate unchanged at 5-5.25%. This was as expected, but further increases are required. GBP/USD’s gains hit the 1.2700 resistance level, a 14-month high, before settling around 1.2640 at the time of writing.
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Overall, the FOMC’s projected interest rate projections — known as the dot chart — showed that policymakers believe they will need to deliver another 50 basis points to raise US interest rates by the end of the year. This could be seen as a surprise political event as markets were looking for a complete end to the cycle or a potential recovery of no more than 25 basis points.
Ian Shepherdson, Chief Economist at Pantheon Macroeconomics, comments: “The points for this year show that two members do not expect further increases; Four expect one hike, nine expect two hikes, two expect three hikes and those who haven’t read the report on policy delays and cumulative impacts expect four.” Susanna Streeter, head of money and markets at Hargreaves Lansdown, says: “The new dot has sparked a sell-off stocks on Wall Street, with much enthusiasm waning recently as investors assess the many hurdles ahead before a rate cut looms. horizon. the year 2024.”
Overall, GBP/USD hit a fresh 13-month high of 1.2699 in the run-up to the Fed decision, but retreated from the original decision and the direction in price action that Sterling warned in the preview. Also according to trading, the EUR/USD rate was higher than 1.0863 before the decision, but subsequently fell to 1.0809.
The Fed said the decision to pause the rate hike cycle was necessary because time was needed to see the full impact of previous hikes on the economy. “Keeping the target range stable at this meeting allows the committee to assess additional information and its implications for monetary policy. In determining the stability of additional policy that may be appropriate for inflation to return to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy and the deceleration with which monetary policy affects economic activity and inflation.
However, Fed Chairman Jerome Powell said in his remarks to the media that the path to the 2.0% inflation target still has some way to go, suggesting that this is not necessarily the end of the road for the rate hike cycle. Almost all policymakers believed some additional increases this year were “appropriate,” Powell added.
This is a clear decline in market prices to start reducing rates right after the end of the year and certainly by 2024; It’s a communication the Fed believes is necessary to ensure credit conditions don’t loosen and fuel inflationary pressures. Inflation has been on a downward trend in recent months, but the Fed sees the situation as risky and is reluctant to send a “crystal clear” for fear of undoing its recent work. Overall, the Fed’s dovish calls for an end to the tightening cycle should help with some demand for the dollar, which has been under pressure for most of June.
- In the near term, based on performance on the hourly chart, GBP/USD appears to be trading in a bullish channel formation.
- This indicates a significant short-term bullish bias in market sentiment.
- Therefore, bulls will look forward to riding the current wave of gains towards 1.2682 or above the 1.2719 resistance.
- On the downside, bears will focus on potential gains from a pullback around 1.2601 or below at 1.2562 support.
In the long term and from the performance on the daily chart, GBP/USD appears to be trading in a bullish channel formation. This suggests a slight bullish long-term bias in market sentiment. Therefore, bulls will target long-term gains around 1.2844 or higher with resistance at 1.3069. On the upside, bears will target gains around 1.2394 or below on support at 1.2160.