The GBP/USD pair rose above 1.3360, increasing by 0.46% after the Federal Reserve’s decision to cut rates to 3.50%–3.75%. This decision aligned with market expectations but showed a 9-3 vote split, with varied opinions on rate adjustments among Fed members.
The updated dot plot from the Summary of Economic Projections indicated a likely 25-basis-point reduction in 2026. The projection showed a majority expecting rates below 3.50% next year, with some members anticipating rates as low as 2%-2.25%.
Gbp Usd Rate Movement
The GBP/USD rate initially surged to 1.3360 before dipping slightly ahead of Jerome Powell’s press conference. Traders are focused on key levels, with potential upward movement towards 1.3400, while a decrease below 1.3320 could lead to testing lower support levels.
The Federal Reserve adjusts interest rates as its primary tool to achieve price stability and full employment. These meetings occur eight times a year, involving twelve Fed officials. Quantitative Easing (QE) and Quantitative Tightening (QT) are used during economic crises or periods of low inflation, impacting the US Dollar’s value.
With the Federal Reserve cutting rates to 3.75%, we saw the expected pop in GBP/USD as the dollar weakened. The 9-3 split vote, however, shows a committee that is not in complete agreement on the path forward. This internal division is a crucial signal for potential uncertainty in the coming months.
The move was justified by recent data showing a continued cooling in the US economy. The November 2025 Consumer Price Index (CPI) report confirmed inflation fell to 2.8%, while the latest jobs report showed unemployment ticking up slightly to 4.1%. These figures give the Fed cover for its dovish turn after the aggressive tightening we witnessed back in 2023.
Inflation And Interest Rate Divergence
In contrast, the UK’s inflation remains more persistent, with its latest reading holding at 3.5%. This suggests the Bank of England will likely maintain a higher interest rate for longer than the Fed. This growing policy divergence between the two central banks is a primary driver for the pound’s current strength.
The mixed signals from the Fed—a dovish cut now but a hawkish dot plot suggesting only one cut in 2026—will likely increase market volatility. We should anticipate choppy price action in GBP/USD as traders struggle to price in the future path of interest rates. This environment makes short-term options strategies, like straddles, more appealing to capture swings in either direction.
Looking back, this rate cut is a significant departure from the sharp hiking cycle of 2022-2023. While the official forecast is cautious, Governor Miran’s vote for a 50-basis-point cut shows there is an appetite for more aggressive easing if economic data worsens. We must watch upcoming retail sales and PMI figures closely for any signs of further slowing.
For now, the key technical levels are clear. A sustained move above the recent high of 1.3385 would open the door to test 1.3400. However, if sellers regain control and push the pair below 1.3320, we could see a quick slide back toward the 1.3250 support level.
