The GBP/USD pair climbed above 1.3360, rising by 0.46% after the Federal Reserve decided to lower rates to 3.50%–3.75%. This move met market expectations but featured a 9-3 vote split, revealing mixed views among Fed members on future rate changes. The new dot plot from the Summary of Economic Projections suggests a 25-basis-point reduction is likely in 2026. The majority expects rates to stay below 3.50% next year, with some members predicting rates as low as 2%-2.25%.

GBP/USD Rate Movement

The GBP/USD exchange rate first jumped to 1.3360 but fell slightly before Jerome Powell’s press conference. Traders are eyeing important levels, with potential gains toward 1.3400. If the rate drops below 1.3320, it could test lower support levels. The Federal Reserve adjusts interest rates to maintain price stability and full employment. These meetings happen eight times a year, involving twelve Fed officials. They also use Quantitative Easing (QE) and Quantitative Tightening (QT) during economic downturns or low inflation, which affect the value of the US Dollar. With the Federal Reserve lowering rates to 3.75%, we saw the expected rise in GBP/USD as the dollar weakened. However, the 9-3 vote split indicates some disagreement within the committee about the future course of rates. This internal division could signal uncertainty in the months ahead. This rate cut was backed by data showing the US economy is still cooling. The November 2025 Consumer Price Index (CPI) report confirmed inflation has decreased to 2.8%, while the latest jobs report noted a slight rise in unemployment to 4.1%. These numbers allow the Fed to justify its more cautious stance after aggressive tightening in 2023.

Inflation and Interest Rate Differences

In contrast, inflation in the UK remains higher, with the latest figure at 3.5%. This suggests the Bank of England is likely to keep interest rates elevated longer than the Fed. The differing policies between the two central banks are a key factor in the pound’s current strength. The mixed signals from the Fed—a dovish rate cut now but a hawkish dot plot indicating only one cut in 2026—are likely to increase market volatility. Traders should expect fluctuating price movements in GBP/USD as they adjust to the potential paths of interest rates. This scenario could make short-term options strategies, like straddles, more appealing to capitalize on swings in either direction. Looking back, this rate cut marks a significant shift from the sharp increases seen in 2022-2023. Although the official forecast is cautious, Governor Miran’s push for a 50-basis-point cut indicates a willingness for more aggressive easing if economic data worsens. We should closely monitor upcoming retail sales and PMI figures for any signs of further slowing. Currently, the key technical levels are clear. A sustained move above the recent high of 1.3385 could lead to a test of 1.3400. However, if sellers take charge and push the pair below 1.3320, we might see a quick drop toward the 1.3250 support level. Create your live VT Markets account and start trading now.

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