GBP/USD breaks below 1.3200 as Fed members eye at least three-rate hikes by 2022 per dot-plot

• The British pound dipped to 1.3170s, then bounced back near 1.3200.
• Fed’s dot plot is far more hawkish, with three rate hikes in 2022 and 2023.  

The GBP/USD edged lower during the New York session after the Fed decided to keep interest rates unchanged at the 0-0.25% range. Further, it decided that a faster bond taper is needed, reducing its bond purchases by $30 Billion, in line with the market’s expectations. Also, the dot-plot witnessed that most of the board members feel comfortable hiking at least three times in 2022, followed by three times in 2023 and three times in 2024.

According to the Summary of Economic Projections (SEP), the Federal Reserve Board members, the median view of the Federal Fund Rates in 2022 is at 0.9%, in 2023 at 1.6%, and by 2024 at 2.1%.

Summarize the Federal Reserve monetary policy statement.

Adding to the abovementioned, the Federal Reserve decided the bond-taper based on “inflation developments and the further improvement in the labor market.” Also announced that the reduction will begin by January, with purchases of $40 Billion in US Treasuries and $20 Billion in mortgage-backed securities (MBS). Moreover, in line with the November FOMC monetary policy statement, it left the door open for further adjustments at the QE’s reduction pace.

Markets reaction

The British pound plunged towards 1.3176 and found strong support around that area, and it is threatening to reclaim the 1.3200 figure. It appears that it was a “buy the rumor-sell the fact” event, as it came in line with expectations.