GBP/USD rallies sharply towards 1.1530s on a volatile session after FOMC’s dovish hike

• The US Federal Reserve hiked rates by 75 bps and would take into account the “cumulative tightening of monetary policy.”
• Hence, the GBP/USD rallied as the rate hike was perceived as dovish.
• The GBP/USD rallied more than 100-pips in the first 5-minute candle, registering the high of the day at 1.1559.

The GBP/USD soars as the Federal Reserve decided to hike rates by 75 bps and also acknowledged that the tightening pace would depend on the cumulative tightening of monetary policy, inflation, and financial markets developments. At the time of writing, the GBP/USD is rallying, though in a volatile trading range within 1.1450-1.1550.

Summary of the Federal Reserve’s monetary policy statement

So the Fed pulled the trigger and hiked rates as expected. However, they added to the statement, “the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments,” which initially is perceived as they acknowledge that monetary policy is not reacting as fast as expected, and would take into account that. That said, the GBP/USD rallied sharply in a dovish-perceived rate hike.

Regarding the Fed’s balance sheet reduction, the policymakers said it would keep reducing as expected and added that the Federal Reserve Open Market Committee (FOMC) would be data-dependent, taking into account public health readings, labor market conditions, inflation pressures, and inflation expectations.

Market’s reaction

The GBP/USD initially dived towards 1.1458 and then skyrocketed toward 1.1559, breaking several resistance levels, like the 1.1500 figure and also 1.1550. Nevertheless, at the time of typing, the GBP/USD meanders around 1.1539 as traders brace for Fed Chairman Jerome Powell’s press conference.

GBP/USD 5-minute chart

GBP/USD Key Technical Levels