While Fed members are arguing about the best approach to fight inflation, the International Monetary Fund said the US economy will continue to struggle with rising prices for another year or two. Deputy Managing Director Gita Gopinath also warned that it is too early to say that world inflation is improving considering that prices are growing everywhere.
Gopinath says energy and food prices are to blame as other more stable components of inflation remain at a fairly high level.
During the Jackson Hole symposium last Friday, Fed Chairman Jerome Powell stressed that the central bank will use all its tools to fight inflation. Most likely, interest rates will continue to increase, which will cause some damage to the US economy. One reason is the continued rise of consumer spending, which reportedly climbed to 6.3% in July.
But there are those who do not agree with such a policy. US Senator Elizabeth Warren criticized the actions of the Fed, saying she is very concerned that Jerome Powell is pushing the economy into recession.
In terms of the forex market, there is a risk of further sharp fall in EUR/USD. Buyers need to hold above 1.0000 because moving down will make it hard for the pair to recover. Meanwhile, going beyond 1.0050 will give confidence to buyers in pushing the quote to 1.0090 and 1.0130. If euro falls below 1.0000, the bear market will continue, which would push the quote to 0.9970, 0.9940, 0.9905 and 0.9860.
Pound is currently below the 17th figure, which creates certain difficulties for buyers. There is very little chance of a strong upward correction, especially if sellers take control of 1.1650. If buyers fail to stay above this level, there will be another set of sell-offs towards 1.1590. Then, its breakdown will lead to subsequent declines to 1.1530 and 1.1480. Only a rise above 1.1720 will bring the pair to 1.1760 and 1.1840.
