GBP/USD rallies above 1.2150 on Fed dovish statement and after Powell presse conference

• GBP/USD rises after the Fed “dovish” 75 bps rate hike.
• Fed Powell opened the door for “another exceptionally” rate hike in following meetings.
• GBP/USD rallied more than 160 pips and hit a daily high at 1.2185 before easing to current price levels.

The British pound extended its gains on Wednesday, post-Fed back-to-back 75 bps rate hike, which lifted the Federal funds rate (FFR) to 2.50%. The central bank conceded that production and spending slowed down, perceived by investors as a slightly “dovish” tilt, without mentioning the “recession” word. At the time of writing, the GBP/USD is trading at 1.2166, up by 1.12%.

Some remarks from Fed Chair Powell's press conference

At his press conference, Fed Chair Jerome Powell said that although commodity prices have eased, there is still upward inflation pressure. He added that “another exceptionally” rate hike may be appropriate while saying that “we are looking for compelling evidence for inflation falling” in the following months.

Jerome Powell added that the central bank would decide monetary policy “meeting by meeting basis” and would not provide forward guidance as before. Powell said that the FOMC sees rate increases in 2023 while adding that the board has not decided when to slow rate hikes.

Summary of the FOMC monetary policy statement

In its monetary policy statement, Fed officials mentioned that spending and production have “softened” but simultaneously said that the labor market is robust. The US central bank noted that inflation remains elevated and has broadened further, emphasizing that the Fed is “strongly committed to returning inflation to its 2 percent objective.”

Meanwhile, policymakers anticipated that additional rate hikes would be “appropriate” and added that the balance sheet reduction would continue as planned in the Plans for Reducing the Size of the Fed’s Balance Sheet, issued in May.

GBP/USD Market’s reaction

The GBP/USD seesawed around 1.2029-88 but rallied once Federal Reserve Chief Jerome Powell took the stand. The GBP/USD rallied from 1.2029 to 1.2185 for a 160 pip upward move of the major, which it is approaching the 50-day EMA around 1.2232.

GBP/USD Key Technical Levels