GBP/USD fluctuates as Federal Reserve hold rates, plans to slow balance sheet reduction

• GBP/USD trades between 1.2480 and 1.2512, reacting to the Federal Reserve's decision to hold rates unchanged.
• The Fed adopts a more balanced approach to achieving employment and inflation targets, noting a stall in progress towards the 2% inflation goal.
• The Fed to reduce its balance sheet in June 2024.

The GBP/USD seesaws after the Federal Reserve held rates unchanged but announced that it would slow the pace of its balance sheet reduction beginning in June. The major trades volatile within the 1.2480/1.2512 range at the time of writing,

Summary of monetary policy statement

Fed officials commented on its monetary policy statement that the risks to achieving employment and inflation goals “have moved toward better balance over the past year.” They acknowledged that despite inflation having been trending lower, “there has been a lack of further progress toward the Committee’s 2 percent inflation objective.”

Regarding the balance sheet reduction, Fed officials noted, “Beginning in June, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion. The Committee will maintain the monthly redemption cap on agency debt and agency mortgage-backed securities at $35 billion and will reinvest any principal payments in excess of this cap into Treasury securities.”

GBP/USD Reaction to Federal Reserve’s decision

Initially, the GBP/USD edged towards its daily high of 1.2512 before retreating beneath 1.2500. Due to the lack of follow-through, the pair could be testing the lows of the day at 1.2466 if the Fed Chairman Jerome Powell delivers some hawkish remarks. The next key support level beneath that would be the April 26 low at 1.2448, followed by the 1.2400 figure. On the upside lies the 200-day moving average (DMA) at 1.2552.

GBP/USD Price Action – Hourly Chart