GBP/USD holds below 1.3800 as Fed split decision keeps USD firm
- GBP/USD remains capped below 1.3800 after the Fed holds rates in a 10–2 decision split.
- Two dissenters initially fuel a dovish reaction, but labor market stability supports the Dollar.
- Traders await Powell’s press conference for clarity on the Fed’s 2026 policy path.
GBP/USD stays below the 1.3800 figure after the Federal Reserve’s decided to keep interest rates on hold, on a 10-2 vote split as two Fed Governors opted for a rate cut of 25 basis points. The pair trades volatile within the 1.3740-1.3790 range, ahead of the Fed Chair Jerome Powell press conference.
Sterling trades sideways as the Fed signals caution, offsetting dissenters who favored an immediate rate cut
The Federal Reserve held interest rates steady at 3.50%–3.75%, following a vote split at its latest policy meeting. Stephen Miran and Christopher Waller—one of President Trump’s nominees to succeed Jerome Powell—dissented in favor of a 25-basis-point rate cut.
Fed officials reiterated that inflation remains “somewhat elevated”, while noting that the unemployment rate has shown signs of stabilization. The Fed added that the economic outlook remains uncertain and emphasized its commitment to remain attentive to both sides of the dual mandate when determining the future path of policy.
Up next, is the Fed Chair Jerome Powell press conference, at 18:30 GMT.
GBP/USD reaction to the Fed’s decision
The GBP/USD seesawed within 1.3752-1.3787, but remains stable below 1.3800. Although there were two dissenters in the decision, which was perceived as dovish, the acknowledgment of a “stable” jobs market, decreased the chances for further easing by the Federal Reserve, going forward.
Fed FAQs
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.
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.
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.
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.