GBP/USD soars to near 1.2400 as Fed stretches interest rates in line with estimates

• GBP/USD has scaled firmly to near 1.2400 as Fed has announced a 25 bps interest rate hike.
• The USD Index has shifted below 101.00 for the first time in nine months amid a risk-on mood.
• To tame double-digit inflation, the BoE is set to announce a tenth consecutive interest rate hike.

The GBP/USD pair has displayed a juggernaut rally to near the round-level resistance of 1.2400 in the late New York session. The Cable has been infused with an adrenaline rush after the interest rate decision by the Federal Reserve (Fed) chair Jerome Powell met expectations. Fed chair Jerome Powell has pushed interest rates to the 4.50-4.75% range by announcing a 25 basis point (bps) hike as the central bank needs more evidence to be confident that inflation is on a downward path.

The US Dollar Index (DXY) has surrendered the critical support of 101.00 for the first time in the past nine months. The USD Index has refreshed its nine-month low at 100.64 despite the Fed having denied the speculation of pausing further restrictions on monetary policy this year. Meanwhile, S&P500 has settled Wednesday’s trading session on a bullish note. The 500-US stock basket recovered initial losses and ended the session with significant gains, portraying a significant improvement in the risk appetite of the market participants.

A smaller interest rate hike by the Fed has strengthened the demand for US government bonds, which led to a decline in the 10-year US Treasury yields to near 3.42%. The US Treasury yields nosedived despite the Fed clearing that the context of cutting interest rates this year is not in the picture.

Well, after sheer volatility in the FX domain inspired by Fed’s interest rate policy, investors are shifting their focus towards the interest rate policy by the Bank of England (BoE), which is scheduled for Thursday. BoE Governor Andrew Bailey looks set to announce a tenth consecutive interest rate hike to tame the double-digit inflation figure. According to a poll from Reuters, Investors are mostly betting on another half percentage-point increase to 4.0% and that Bank Rate will peak at 4.5% soon.