Above: Chair Powell answers reporters' questions at the FOMC press conference on July 26, 2023. Image: Federal Reserve.
The pound to dollar exchange rate (GBP/USD) is back above 1.33.
Pound sterling's uptrend against the dollar was reinforced overnight when the Federal Reserve lowered interest rates 25bp to 3.50‑3.75%, and erred towards further interest rate cuts in 2026.
GBP/USD rose from below 1.33 to 1.3389 after Jerome Powell, the Fed's Chair, struck a relatively 'dovish' tone in the press conference that followed the release of the initial decision and statement.
Powell said inflation is now in "the low 2s" if you exclude direct tariff impacts, which suggests a rather sanguine view on inflationary threats. At the same time, he says the labour market has significant downside risks.
The spectre of rising unemployment and well-behaved inflation will usher in further rate reductions, which will weigh on U.S. bond yields and the dollar.
The Fed's latest set of forecasts - expressed through the dot plot chart - showed Fed committee members maintained a relatively unchanged set of expectations for the future of the Fed Funds interest rates.
This solidifies expectations for at least another cut in early 2026.
Also weighing on the dollar is the looming appointment by President Donald Trump of Kevin Hassett as the next Fed Chair in 2026, someone who is anticipated to err towards further interest rate reductions.
"The softer inflation backdrop, the impending Fed leadership transition, resurgent FOMC composition risks and the timing of US employment data, out next week, add to our assessment," says Alvise Marino, a strategist at UBS. "Barring a strong upward surprise in the latter, we remain biased towards USD weakness extending into year-end
GBP/USD had eased into the Fed decision but losses were restricted to just below 1.33, which is where the 55-day exponential moving average (EMA) resides.
The post-Fed rebound ensures it stays above that EMA, reinforcing a constructive near-term setup.
From here, the mid-October high at 1.3471 becomes visible.