GBP/USD shows a vertical decline to near 1.2260 as Fed’s Powell denies rate cuts in 2023

• GBP/USD corrects vertically from 1.2335 as Fed Powell denies rate cuts this year.
• US Yellen commented that they are not considering insuring all uninsured bank deposits.
• Going forward, the interest rate decision by the BoE will be keenly watched.

The GBP/USD pair has surrendered the majority of its gains generated after the Federal Reserve (Fed) announced a 25 basis point (bp) rate hike to 4.75-5.00% in its monetary policy meeting. The Cable has dropped vertically after printing a fresh six-week high at 1.2335 as Fed chair Jerome Powell has cleared that the central bank is not expecting any rate cut this year.

The main agenda of the Fed that inflation has to bring down to the desired rate of 2% is intact and the central bank would do ‘whatever it takes’ required for the same. Fed Powell has cleared, "Recent liquidity provision for rescuing the collapse of commercial banks that has increased balance sheet size is not intended to alter the stance of monetary policy."

Meanwhile, S&P500 has surrendered its entire gains delivered on Tuesday after Fed Powell cleared that rate cuts are not in pipeline at least this year. This has strengthened the fears of a recession in the United States. Apart from that, commentary from US Treasury Secretary Janet Yellen that they are not considering insuring all uninsured bank deposits has spooked market sentiment further. The statement came contradictory as she stated on Tuesday that the administration will safeguard all deposits.

The US Dollar Index (DXY) has shown some recovery after dropping to near 102.00 as hopes of rate cuts have faded well. The USD Index has recovered to near 102.60 and a volatility contraction is expected ahead.

On the United Kingdom front, investors are awaiting the interest rate decision by the Bank of England (BoE) for fresh impetus. A surprise rise in the UK inflation released on Wednesday has bolstered the need of more rate hikes from the BoE. Analysts at UOB are of the view that BoE Governor Andrew Bailey would hike rates further by 25 bps.