Fed Signals Higher Inflation Longer
The dot plot median still shows one cut this year, while members projecting no cuts increased to seven from six. The longer-run neutral rate estimate rose to 3.1%. Powell said inflation progress has been limited and linked ongoing goods inflation to tariffs, estimating that half to three-quarters of core inflation above target is tariff-driven. He said it is too soon to judge the scope and duration of Middle East oil impacts, and that the Fed cannot look through energy-driven inflation until tariff-related goods prices are contained. Focus now shifts to the BoE, after a 5-4 hold vote in February, with some forecasts now looking for 7-2 or 6-3. UK services CPI was 4.4% versus a 4.1% BoE forecast, and many economists now see a cut no earlier than April. On a 15-minute chart, GBP/USD was at 1.3290, below the 200-period EMA near 1.3326, with the Stochastic in single digits. Resistance sits at 1.3320–1.3335 and 1.3360, while support is at 1.3285 then 1.3250.BoE Decision And Trade Plan
The Federal Reserve’s decision to hold rates and signal higher inflation for longer is the key takeaway for us. This hawkish stance strengthens the US dollar, putting immediate and sustained pressure on the GBP/USD pair. The market’s sharp sell-off during Powell’s press conference confirms that traders are pricing in a more powerful Fed compared to other central banks. This situation feels familiar, as we saw during the 2018-2019 period how trade tariffs directly impacted inflation, forcing the Fed’s hand. Likewise, the oil shock brings back memories of 2022, when energy price spikes after the invasion of Ukraine complicated monetary policy globally. Historical data shows that in such environments, the US dollar often acts as a safe haven, especially when the Fed maintains a tough anti-inflation stance. While the Bank of England is also expected to hold rates tomorrow, its position appears weaker and more reactive. It is being forced to delay cuts because of the oil shock, not because of underlying economic strength like the US is showing. This divergence in central bank confidence should continue to favor the dollar over the pound in the coming weeks. Given this outlook, we should consider buying put options on GBP/USD with expiry dates in April or May. With the pair currently at 1.3290, targeting strike prices like 1.3200 or 1.3100 would position us to profit from a continued decline. The increased uncertainty from the Middle East conflict will likely keep option volatility elevated, reflecting the potential for sharp moves. We should use the technical levels outlined as our guide for timing trades. The resistance zone at 1.3320–1.3335 is now a critical ceiling, and any failure to break above it should be seen as an opportunity to initiate or add to short positions. Our initial downside target is the recent low of 1.3285, with a break below that opening the door to the 1.3250 area. Create your live VT Markets account and start trading now.
Start trading now – Click here to create your real VT Markets account
