GBP/USD clings to the 1.3050 area post-Fed first rate hike since 2018

• The US central bank hiked rates 25 bps, as widely expected by the markets.
• The Brtish pound’s initial reaction was downwards, piercing the 1.3060, though of late extended losses towards 1.3050.
• FOMC voted 8-1 with St. Louis Fed President Bullard favoring a 50 bps hike.

On Wednesday, the Federal Reserve hiked 25 basis points the Federal Funds Rate (FFR) for the first time in three years. At press time, the GBP/USD is trading around 1.3053, clinging to 0.10% gains.

GBP/USD’s Market reaction

The British pound dropped from nearly 1.3100 towards 1.3060 once the headline crossed the wires, while the US 10-year Treasury note yield rose to 2.212%, the highest since May 2019.

Summary of remarks of Fed monetary policy statement

Fed officials noted that inflationary pressures remain high courtesy of supply difficulties and the pandemic. Furthermore, they said that the implications of the Russian war are “highly uncertain” for the US economy and would likely create additional upward pressure on inflation and weigh on economic activity.

Meanwhile, the Summary of Economic Projections (SEP) revealed the dot-plot, where Fed board members expect at least seven hikes in 2022.

Regarding the labor market, the committee expects the Unemployment rate to hit 3.5% by the end of 2022 and remain at that level in the following year. Policymakers expected to begin reducing Fed’s holdings of Treasuries and mortgage-backed securities (MBS) at a coming meeting. They added that they would adjust monetary policy stance as appropriate if risks emerge that could impede Fed’s goals.

Noteworthy that the Federal Open Market Committee voted 8-1 with St. Louis President James Bullard dissenting, who favored a 50 basis point increase.

Hourly chart