GBP/USD Slides Below 1.3780 as Fed Hold Boosts the Dollar

GBP/USD fell below 1.3780 during Thursday’s North American session as the US Federal Reserve (Fed) kept interest rates unchanged and highlighted a stable labor market. At the time of writing, the pair trades at 1.3779, down 0.18%, reflecting pressure from a stronger US Dollar and weaker risk assets.

Dollar Strength and Risk Asset Sell-Off

The US Dollar Index (DXY), which tracks the buck against six major currencies, surged 0.65% to 96.40, creating headwinds for Sterling. The Dollar’s rally pushed Gold, Silver, and cryptocurrencies like Bitcoin and Ethereum lower, signaling a broad risk-off sentiment in financial markets.

The Fed held rates at 3.50%-3.75% in a 10-2 vote, with Governors Waller and Miran advocating a 25-basis-point cut. Fed Chair Jerome Powell maintained a neutral tone, noting that economic conditions remain solid, labor market risks have eased, and price pressures are manageable. Powell emphasized the importance of data-driven policy while advising his successor to avoid political involvement.

US initial jobless claims for the week ending January 24 rose slightly to 209K, just above expectations but below the previous week’s 210K, reinforcing the Fed’s view of a stable labor market.

UK Focus: BoE and Political Risks

Traders now shift attention to the Bank of England’s (BoE) upcoming monetary policy decision. Domestic political uncertainties within the UK, especially in the Labour Party, also pose potential headwinds for Sterling. Chris Turner, head of forex strategy at ING, noted that “UK politics may well take its toll on Sterling over the coming months.”

GBP/USD Technical Outlook

Technically, GBP/USD remains under pressure but shows potential for recovery. The pair dropped to a two-day low of 1.3742 before partially rebounding. A daily close above 1.3800 would signal a bullish resumption, offering buyers a chance to test higher levels. On the downside, the last key support is 1.3668, with further declines potentially targeting 1.3600.

Overall, GBP/USD continues to be influenced by US monetary policy, Dollar strength, and UK political and economic developments, keeping traders alert to shifts in sentiment.

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