GBP/USD Tumbles Toward the 20-Day SMA After Fed, BOE

The GBP/USD dropped sharply on Thursday, mainly due to a stronger U.S. Dollar at critical times for currency markets, following decisions from the Federal Reserve, the European Central Bank, and the Bank of England.

As expected, the Fed, the ECB, and the BoE raised key interest rates by 50 basis points amid high inflation. There were no surprises there. At the Fed, Chair Powell maintained a somewhat hawkish tone, which, together with the macroeconomic projections, seemed to forecast higher interest rates for a longer time than previously anticipated.

The dollar fell initially but then reversed and strengthened during Powell's comments. On Thursday, the appreciation took another magnitude, with the added bonus of risk aversion across financial markets. Main Wall Street's indexes fell by more than 2% on worries about the global growth outlook at times of monetary tightening.

Those fears about growth are more significant in the United Kingdom. The outlook led two Bank of England's Monetary Policy Committee members to vote against raising interest rates. The other seven members voted for a hike. Two votes for "no change" were the surprise that weighed on GBP. The pound weakened further following the European Central Bank meeting.

U.S. economic data released on Thursday was mixed. Friday will be the turn of the PMIs across the world, the first number of activity during December. Poor readings may fuel risk aversion, favoring the dollar against the pound. 

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