GBP/USD seesaws around 1.1330 after hitting YTD lows around 1.1230s as Powell speaks

• GBP/USD tanked to fresh multi-year lows at around 1.1234 as a reaction to the Fed’s 75 bps rate hike.
• According to the SEP, the US Federal Reserve would likely lift rates by an additional 125 bps.
• The SEP reported that growth might dip towards 0.2%, while inflation is projected to end at around 4.5 to 5.4%.

The GBP/USD sank and refreshed 37-year lows, sliding below the 1.1300 figure, hitting a 2022 YTD low at 1.1235 after the US Federal Reserve hiked rates by 75 bps in the September meeting. According to the Summary of Economic Projections (SEP), officials opened the door for another 75 bps in November and a 25 bps interest rate increase in December. At the time of writing, the GBP/USD seesaws around the 1.1300-50 area in a volatile trading session as Fed Chair Powell speaks.

Some remarks of Fed Chair Jerome Powell’s press conference

In the Q&A session, Chair Powell said that the Fed has moved into the lowest level of restriction and added that it would take some time to see the full effects of changing financial conditions. Powell said that longer-run inflation expectations remained somewhat anchored and added that supply shocks had caused part of the inflation, and if they abate, it could help ease elevated prices.

Furthermore, regarding a soft landing, he said it would be challenging, but no one knows if the current Fed tightening process would lead to a recession and how deep it would be.

Summary of the monetary policy statement

According to its mandate, the US Federal Reserve decided to hike rates to the 3-3.25% range on Wednesday, bringing inflation towards its 2% target. In the monetary policy statement, the FOMC reiterated that it’s strongly committed to reaching the Fed’s goal and mentioned that further rate hikes are needed.

Fed officials acknowledged that economic indicators point to modest economic growth while spending is getting hit by higher rates. Participants mentioned that the labor market remains “robust,” and the unemployment rate has remained low.

Concerning inflation, Fed officials mentioned that inflation remains elevated due to reflecting imbalances between supply and demand.

Aside from this, the Summary of Economic Projections (SEP) policymakers expects the Federal funds rate to increase to 4.4% by the year’s end, as reported by the median. Meanwhile, as reported by the PCE, inflation is estimated to reach 5.4%, while the core PCE figure, which is the benchmark for Fed members, is estimated to end at 4.5%. The unemployment rate is calculated to uptick to 3.8%.

Notably, most inflation readings were revised upwards, alongside interest rate projections.

Markets reaction

The GBP/USD dropped below the 1.1200 mark as the headline crossed newswires and reached a YTD low at 1.1234. However, bids entered around the year’s lows and climbed toward current price levels, jumping almost 100 pips, as the US Federal Reserve Chair Jerome Powell took the stand.

GBP/USD Key Technical Levels