GBP/USD dropped after the US Federal Reserve (Fed) held rates unchanged, in a buy-the-rumor, sell-the-fact reaction, as the GBP/USD is set to erase some of its earlier gains, which saw the GBP/USD reaching a new year-to-date (YTD) high at 1.2698. At the time of writing, the GBP/USD is trading volatile at around the 1.2690/1.2640 area as traders brace for Jerome Powell’s press conference.

Summary of the Federal Reserve’s monetary policy statement

In its monetary policy statement, the Federal Reserve said the labor market remains robust, with the unemployment rate low and inflation remains elevated. Furthermore, tighter conditions are likely to weigh on economic activity; therefore, according to the statement, policymakers decided to keep rates unchanged, which will “allow the Committee to assess additional information and its implications for monetary policy. In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”

Regarding the dot-plot, revealed in the Summary of Economic Projections (SEP), officials revised upwardly, with most expecting the Federal Funds Rate (FFR) to hit 5.6% this year. Hence, Jerome Powell and Co. are evaluating 50 bps of additional rate hikes, up from the 5.10% projections in March.

Federal Reserve officials projected growth at 1% in 2023, up from 0.4% in March, and the Unemployment rate was downward revised from 4.5% to 4.1%. The Fed’s preferred gauge for inflation, the Core PCE, is estimated at 3.9% compared to March 3.6%, while general PCE is estimated at 3.2% from 3.3