GBP/USD reached 7-week highs and remains volatile amidst Fed’s dovish hike

• GBP/USD rallied towards its daily high at 1.2304 on the headlines.
• The US Federal Reserve hikes rates by 25 bps to the 4.75% - 5.00% range.
• Traders eyed the Federal Reserve Chair Jerome Powell’s press conference.

The GBP/USD is rallying sharply after the US Federal Reserve raised rates by 25 bps. Federal Reserve officials updated its dot-plot, with 10 out of 18 policymakers expecting another 25 bps rate hike by the end of the year. At the time of typing, the GBP/USD is trading volatile within the 1.2240-1.2300 range as traders brace for Fed’s Powell press conference.

Summary of the Federal Reserve’s statement

In its statement, the Fed acknowledged that the recent developments in the financial markets could tighten monetary conditions for households and businesses. However, the US central bank emphasized that the US banking system is solid and resilient.

Fed officials commented that the labor market remains strong and inflation is still elevated. Regarding the Quantitative Tightening (QT), the Fed commented that the balance sheet reduction would continue as planned and reiterated that the Committee “is strongly committed to returning inflation to its 2 percent objective.”

From the monetary policy statement, Federal Reserve’s policymakers removed the phrase “ongoing increases.”

The Summary of Economic Projections (SEP) was almost unchanged. The dot plots, the Federal Reserve’s officials’ projections for interest rates, remained unchanged at 5.10%. Real GDP is expected at 0.4% vs. December 0.5%, while the Unemployment Rate is expected at 4.6% vs. 4.5%. The Federal Reserve’s preferred gauge for inflation, the core PCE is expected at 3.6%, compared to the last SEP report in December at 3.5%, while headline inflation is estimated at 3.3%, vs. 3.1% of the prior’s SEP.

GBP/USD’s reaction to the headline

The GBP/USD skyrocketed in the first 10 minutes following the Fed’s monetary policy statement release. The GBP/USD rallied to new 7-week highs but has retraced its gains ahead of the Fed Chair Powell press conference.

GBP/USD Technical levels