The GBP/USD pair rose on Wednesday after the Federal Reserve (Fed) decided to cut interest rates, as expected, with a 9-3 vote, which saw two members vote in favor of holding interest rates, while Fed Governor Stephen Meiran voted in favor of a 50 basis point cut. At the time of writing, the pair is trading at 1.3350, up 0.46%.
9-3 Fed vote split sends GBP/USD higher, with traders eyeing key levels
The FOMC vote split was 9-3: Governor Steven Meyran dissented in favor of a 50 basis point cut, while Jeffrey Schmid and Austin Goolsby favored keeping interest rates unchanged.
The Summary of Economic Projections (SEP), including an updated dot plot, showed that most officials expect the federal funds rate to reach near 3.4% next year, implying just one 25 basis point cut in 2026, according to the median.
The dot plot showed that 12 out of 19 Fed members expect the federal funds rate to be below 3.50% next year. Eight of those twelve are sitting around the 3%-3.50% range, two expect interest rates to range around 2.75%-3%, one is at 2.50%-2.75%, and Miran is at around 2%-2.25%.
GBP/USD reaction – hourly chart
The GBP/USD pair pushed higher, bouncing from the 1.3326 level and reaching 1.3360, before retreating somewhat ahead of Fed Chairman Jerome Powell’s press conference. A break above the daily high will expose the December 4 high at 1.3385 before reaching 1.3400. On the downside, if the pair drops below 1.3320, expect a test of the intraday low at 1.3295, with an eye on 1.3250.
Federal Reserve Bank Questions and Answers
Monetary policy in the United States is shaped by the Federal Reserve Bank (Fed). The Federal Reserve has two missions: achieving price stability and promoting full employment. The primary tool for achieving these goals is adjusting interest rates. When prices rise too quickly and inflation is above the Fed’s 2% target, it raises interest rates, which increases borrowing costs throughout the economy. This causes the US dollar (USD) to strengthen because it makes the United States a more attractive place for international investors to park their money. When inflation falls below 2% or when the unemployment rate is very high, the Fed may lower interest rates to encourage borrowing, which affects the dollar.
The Federal Reserve (Fed) holds eight policy meetings annually, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC meeting is attended by twelve Fed officials – the seven members of the Board of Governors, the New York Fed president, and four of the remaining eleven regional Fed presidents, who serve one-year terms on a rotating basis.
In extreme cases, the Fed may resort to a policy called quantitative easing (QE). Quantitative easing is the process by which the Federal Reserve dramatically increases the flow of credit into a stuck financial system. It is a non-standard policy measure used during crises or when inflation is very low. It was the Fed’s weapon of choice during the Great Financial Crisis of 2008. It involves the Fed printing more dollars and using them to buy high-quality bonds from financial institutions. Quantitative easing usually weakens the US dollar.
Quantitative tightening (QT) is the reverse process of quantitative easing, where the Fed stops purchasing bonds from financial institutions and does not reinvest capital from bonds it holds outstanding, to purchase new bonds. This is usually positive for the value of the US dollar.
