GBP/USD holds below 1.3800 as Fed split decision keeps USD firm

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's press conference.

GBP/USD reaction to the Fed’s decision

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.

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.