GBP/USD slides as Fed holds rates, flags rising inflation, growth uncertainty

• Fed keeps rates steady at 4.25%-4.50%, citing increased economic uncertainty.
• Officials highlight solid growth and strong labor market, but note inflation remains elevated.
• Balance sheet runoff to continue; Dollar firms as risk sentiment shifts post-Fed announcement.

The GBP/USD extended its losses on Wednesday after the Federal Reserve decided to keep interest rates unchanged as expected, with most eyes set on Fed Chair Jerome Powell's press conference. At the time of writing, the pair trades near 1.3331, down more than 0.20%.

GBP/USD drops over 0.20% to 1.3331 as traders await Powell's press conference for policy clarity

The Federal Reserve unanimously voted to hold interest rates steady at 4.25%-4.50%, as expected. The central bank noted that economic uncertainty has increased, with heightened risks of both elevated inflation and rising unemployment.

Officials acknowledged that the economy continues to expand at a solid pace, supported by a resilient labor market, though they warned that inflation remains somewhat elevated.

On the balance sheet, the Fed reaffirmed its commitment, stating: "The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities."

GBP/USD reaction to Fed's decision 

The GBP/USD initially spiked to 1.3341, but as traders digested the statement, the Greenback recovered some ground, pushing the exchange rate lower. At the time of writing, spot prices lie close to the daily low of 1.3322, which could be tested if Powell becomes hawkish at his press conference.

In that outcome, the next key support level is the 1.3300 mark, followed by the 20-day Simple Moving Average (SMA) at 1.3276. On the flip side, Powell's dovish approach could clear the path towards 1.3400 and put into play the year-to-date (YTD) peak at 1.3443.