GBP/USD stayed weak near 1.3480 and was down about 0.30% after the Federal Reserve left interest rates unchanged. Markets waited for Jerome Powell’s press conference for direction on the US Dollar.
The Fed described the US economy as resilient and said the unemployment rate has been little changed in recent months. It also said inflation remains elevated and linked some pressure to higher energy prices tied to the Iran conflict.
Fed Outlook And Middle East Uncertainty
Officials said Middle East developments are adding uncertainty to the economic outlook. The Fed said it will keep balancing its dual mandate goals.
The decision passed on an 8–4 vote. Stephen Miran dissented in favour of a rate cut, while Beth Hammack, Neel Kashkari, and Lorie Logan opposed adding an easing bias to the statement.
Powell said Kevin Warsh cleared an early step towards becoming his successor. He said he plans to remain a Fed Governor until a criminal investigation involving him concludes, and stay after May 15, when his eight-year term as Chair ends.
GBP/USD dipped to about 1.3467 and tested the 100-day simple moving average. A break lower could open 1.3400, while a softer Powell tone could push it towards 1.3500.
Market Implications For The Dollar
Looking back at the Federal Reserve’s final meeting under Jerome Powell in 2025, we can see the seeds of today’s market uncertainty were already being sown. The significant 8-4 split vote on holding rates highlighted deep divisions that have persisted under the new leadership. With US core inflation proving sticky at 3.6% this month and unemployment steady at 3.8%, the hawkish members from that meeting appear to have solidified their influence.
The concerns over higher energy prices linked to the Iran conflict, which were noted last year, have evolved but not disappeared. While that specific tension has cooled, ongoing global supply chain disruptions have kept WTI crude futures trading in a volatile band above $85 a barrel. This persistent energy cost continues to add an element of unpredictability to the inflation outlook that the Fed must navigate.
The transition from Powell to Kevin Warsh has resulted in a more decisively hawkish tone from the central bank, removing the ambiguity we saw this time last year. Markets are now pricing in less than a 20% probability of a rate cut before the fourth quarter, according to recent CME FedWatch data. This firm stance is anchoring the US Dollar’s strength against other major currencies.
For derivative traders, this suggests a strategy of positioning for continued US dollar strength and potential market volatility. Given that the VIX index has recently climbed from lows near 12 to just under 18, buying out-of-the-money calls on volatility could be a cost-effective way to hedge against sudden market swings. Using option spreads like bear call spreads on EUR/USD may also offer a defined-risk way to capitalize on a stronger dollar.
When we consider GBP/USD, its test of the 1.3400 level in the spring of 2025 now seems like a distant ceiling. The policy divergence has only widened, as the Bank of England is now openly discussing rate cuts to stimulate a sluggish domestic economy. This makes long-dated put options on the British Pound an increasingly relevant strategy to hedge against further downside for the pair.
