Pound Falls as Fed Delivers Second Rate Cut and Confirms QE Wind-Down

The British pound slipped against the US dollar on Wednesday after the Federal Reserve confirmed a widely expected quarter-point interest rate cut and signaled continued steps to reduce its balance sheet. The decision, though fully anticipated by markets, still triggered fresh movements across major currencies as investors adjusted positions ahead of year-end.

The Federal Open Market Committee (FOMC) voted to lower the federal funds rate by 25 basis points, marking its second consecutive cut this year. Alongside the rate decision, the Fed reaffirmed its plan to keep winding down quantitative easing measures, specifically by shifting holdings away from mortgage-backed securities and into longer-term Treasuries. The balance sheet adjustment is set to continue through December, signaling a measured but persistent effort to tighten financial conditions.

While the rate reduction was largely priced in, traders were closely watching for any hints about future moves. The Fed’s accompanying statement acknowledged a modest rise in inflation during the second half of the year but emphasized that price pressures remain under control. The tone of the announcement left markets speculating that another rate cut could be on the table when policymakers reconvene in December.

The pound’s decline reflected both the immediate strength of the US dollar and concerns about diverging policy paths between the Fed and the Bank of England. With US rates moving lower but remaining relatively attractive, demand for the greenback stayed firm. Meanwhile, the UK’s economic outlook continues to weigh on sterling, as investors grow cautious about slower growth and potential monetary easing in Britain.

Globally, financial markets remain sensitive to every signal from Washington. The Fed’s balancing act—between supporting growth and managing inflation—continues to define the broader direction of currencies, bonds, and commodities. As the US central bank trims borrowing costs for the second time in a row, investors are already shifting their focus to whether December will bring a third cut in what could become a sustained easing cycle.

For now, the Fed’s message was clear: it will continue to fine-tune its policy mix while monitoring the economy’s resilience. The combination of a rate cut and ongoing quantitative tightening underscores the central bank’s delicate approach—easing just enough to support activity without reigniting inflationary risks.

The coming weeks will reveal whether this strategy reassures markets or fuels further volatility in currencies like the pound, which remains one of the most reactive to changes in US monetary policy.