**GBP/USD Slips as Fed Pushes Back on September Rate Cut; Robust US Data Supports Dollar**
*By Matías Salord | FXStreet*
The British pound slipped against the US dollar on Wednesday, with GBP/USD falling below 1.6700 after the Federal Reserve signaled it is not in a hurry to cut interest rates, and stronger-than-expected US economic data further solidified the dollar’s position. The combination of a cautious Fed and resilient US economic indicators weighed on sterling, providing tailwinds for the greenback in global foreign exchange markets. This article delves deeply into the context, policy signals, economic data, and broader market reactions to explain the drivers of the latest GBP/USD movements.
—
### FOMC Holds Rates, Pushes Back Against September Rate Cut Expectations
The Federal Open Market Committee (FOMC) concluded its July policy meeting with the expected outcome of holding the federal funds rate steady in the 5.25% to 5.50% range, marking the sixth consecutive meeting without a policy change. However, markets were most sensitive to subtle changes in forward guidance within the accompanying statement and Chair Jerome Powell’s press conference.
**FOMC key takeaways:**
– The statement highlighted “modest further progress” towards the Fed’s 2% inflation target.
– The central bank noted that risks to achieving its employment and inflation goals are “moving into better balance,” suggesting more confidence in the current policy stance.
– Only two rate cuts are projected for 2024, as per the June Summary of Economic Projections (the “dot plot”), though market anticipation for a September cut had been building due to softening inflation data.
– Powell emphasized in his press conference that while inflation has moderated over the past year, it remains “elevated,” and the Fed needs more evidence that it is sustainably heading toward 2% before lowering rates. He commented, “We’re not confident that we’ve achieved a stance of policy that is sufficiently restrictive.”
**Implications for the dollar:**
– The messaging was interpreted as more hawkish than expected, causing traders to question the likelihood of an imminent cut in September.
– CME FedWatch Tool readings after the meeting showed only about a 65% probability for a 25-basis point cut in September, down from over 75% earlier in the month.
—
### Robust US Economic Data Reinforces the Dollar
Alongside the Fed’s signals, a wave of strong US economic data reaffirmed the resilience of the world’s largest economy. This stood in sharp contrast to mixed-to-dovish signals out of the UK and Europe, further strengthening the dollar against the pound.
**Key economic indicators released:**
– **ADP National Employment Report:** Private payrolls increased by 182,000 in July, more than the expected 150,000, suggesting ongoing labor market strength.
– **US GDP (Q2, advance):** The economy grew at an annualized pace of 2.4%, much higher than anticipated. The strong GDP print pointed to healthy consumer spending and business investment.
– **Durable Goods Orders:** Orders fell slightly (-0.6%) in June but excluding transportation, the core reading beat forecasts and confirmed robust capital goods demand.
– **Jobless Claims:** Initial claims remained below 220,000, signaling few layoffs and tight labor conditions.
– **PMI Surveys:** Both the ISM Manufacturing and Services PMIs beat consensus, indicating continued expansion.
**Market reaction:**
– Yield on the 2-year Treasury note spiked above 4.55% after the Fed and data, as traders unwound bets on a rapid dovish pivot.
– The DXY dollar index surged over 0.4%, hitting weekly highs.
—
### GBP/USD Under Pressure: Sterling’s Weakness Magnified by UK Headwinds
The move in GBP/USD reflected not only dollar strength but also concerns about the UK’s economic outlook. While the Bank of
Read more on GBP/USD trading.