GBP/USD climbs after FOMC hold rates, revise long-term projections

• GBP/USD sees a significant uptick, navigating the 1.2700/1.2750 range following the Federal Reserve's rate decision.
• Fed holds interest rates steady, with an emphasis on the ongoing strength of the US economy and labor market.
• Despite high recent inflation, Fed's projections for 2024 remain stable; slight adjustment made for 2025 FFR outlook.

The GBP/USD climbed sharply after the Federal Reserve’s (Fed) decision to hold rates but kept their interest rate cut projections unchanged for 2024. Consequently, the Greenback tumbled, while US Treasury bond yields climbed. At the time of writing, the GBP/USD trades volatile in the 1.2700/1.2750 area ahead of Fed Chair Jerome Powell's press conference.

Summary of the Fed’s monetary policy statement

The US Federal Reserve has decided to keep interest rates steady at 5.25%-5.50% and continue reducing its balance sheet at an ongoing pace since May 2023. In their announcement, Federal Reserve officials highlighted the strength of the US economy and the robustness of the labor market. While progress on inflation has been acknowledged, they cautioned that the effort to stabilize prices is not yet finished. They noted an improved balance in the risks associated with achieving the Fed's dual mandate of maximum employment and stable prices, affirming their commitment to data-driven decision-making.

Following two consecutive months of unexpectedly high inflation data, the Federal Reserve adjusted its monetary policy outlook for 2025. Although the median forecast for 2024 remains unchanged at 4.6% from December's projection, the forecast for the Federal Funds Rate (FFR) for 2025 was revised upwards from 3.6% to 3.9%. Other economic indicators were also updated in their statement.

• The Gross Domestic Product (GDP) for 2024 was revised to 2.1%, up from 1.4% in December.
• The Unemployment Rate was revised downward, expected to fall to 4.0%, from 4.1%.
• The Personal Consumption Expenditure (PCE) Price Index target wasn’t changed, remaining at 2.4%, while core PCE is estimated to end 2024 at 2.6%, up from 2.4%.

Following the release of the data, the yield on the US 10-year Treasury note decreased by two basis points to 4.275%. Concurrently, the US Dollar is experiencing downward pressure.

GBP/USD Price Action – Hourly Chart

The GBP/USD surged towards a daily high of 1.2752, but since then, the pair has retreated towards the 100-moving average (SMA) at around 1.2725. As the Fed Chair Jerome Powell press conference looms, the major could re-test daily highs on dovish remarks, and that could expose the 1.2800 mark. A breach of the latter will expose the March 14 high of 1.2823, followed by the March 8 high at 1.2894. on the flip side, the pair could edge towards the 50-SMA at 1.2713, ahead of the 1.2700 mark. Further downside is seen at the March 19 low of 1.2667.