Several speeches and statements by Fed representatives last week were replaced by similar speeches by other reserve bank managers. This makes it clear that an aggressive increase in interest rates in the United States in May this year is a done deal. This is confirmed by a sharp jump in the yield of US bonds, which investors get rid of in the expectation of higher yields in the future. The inversion of the yield curve, which is also being talked about, further pushes traders away from buying risky assets (talking about the euro, pound, etc.), forcing them to shift to the US dollar.
San Francisco Fed President Mary Daly compared high inflation to unemployment, saying that higher prices are just as harmful as a lack of work. Daly said the Fed will use its tools to fight inflation with all its might. "If you are not sure that we are very serious, let me convince you of this," she said. San Francisco Fed President Mary Daly, like all other Fed members, is concerned about inflation, which leads to a high cost of living and puts a heavy burden on society and households. Gasoline prices, which declined slightly in the United States after updating the next records at the end of last month, have so far eclipsed all other market sectors, where there is also a sharp rise in prices. "If you have a job, but you can't pay your bills or you can't save up for anything - it's wrong, and something needs to be done about it," said Daly. "Our goal as a regulator is to make sure that people don't worry about whether their dollar will be the same today or lose its value tomorrow," she said during her speech.
Daly also noted that the Fed is embarking on a policy tightening phase, which will include not only higher interest rates but also an active reduction in the Fed's balance sheet, which is quite seriously inflated after the support provided by the Central Bank to support the economy during the coronavirus pandemic. Fed officials hope that the cancellation of the ultra-soft policy they pursued during the pandemic will help bring inflation closer to their long-term goal of 2%. Let me remind you that the consumer price index has grown to 7.9% over the past 12 months, which is the highest indicator in more than 40 years. This is far from the peak that awaits America this year.
Also, according to Daly, even with higher rates, the economy will not enter a recession, although its growth rate is expected to slow down slightly.
The head of the Federal Reserve, Lael Brainard, made similar statements. She pointed out that the increase in interest rates may occur at a more aggressive pace than the usual increase of 0.25 percentage points. Let me remind you that at the March meeting, the Fed has already approved an increase of 0.25% - the first in the last three years. It is worth noting that Brainard usually advocates a soft policy and low rates. But even she said that the Central Bank must act quickly and aggressively to reduce inflation. "Currently, inflation is too high, and the risk of its further growth is quite serious," she said in a prepared speech. "The Committee is ready to take more drastic measures if the indicators of inflation and inflation expectations confirm our concerns."
As for the technical picture of the EURUSD pair
The geopolitical tension around Russia and Ukraine has again grown to a rather serious level, as Kyiv is delaying negotiations. Given the aggressiveness of the Fed's policy, it is best to bet on further strengthening of the dollar. To return the market under their control, euro buyers need a break above 1.0925, which will allow the correction to continue to the highs of 1.0970 and 1.1010. In the event of a decline in the trading instrument, buyers will be able to count on support around 1.0880. Its breakdown will quickly push the trading instrument to the lows of 1.0840 and 1.0770.
As for the technical picture of the GBPUSD pair
The pound remains in a wide side channel, and for the bulls to continue to grow, they need to think about how to return resistance at the base of the 31st figure. A break in this range will open the way to 1.3135 and then to 1.3165 - the upper limit of the side channel. If the bears achieve a breakdown of 1.3060 and go beyond the lower range, you can safely catch the pound in the areas of 1.3000 and 1.2960.
