Risk appetite continues to fall as expectations for softer policy are decreasing more and more. Cleveland Fed President Loretta Mester has recently said that the bank has a lot of work to do to curb inflation, so it currently sees no reason to slow the pace of interest rate hikes.
Fed officials are now raising interest rates at the fastest pace seen in decades. In this way, they are trying to suppress stubbornly high inflation, which continues to grow and is in the region of a forty-year high. And since the Fed raised rates by 75 basis points last month to a target range of 3.25%, most likely, it will hit 4.4% by the end of this year, which means that there will be 1.25% increase at the November and December meetings.
Mester reiterated that the US central bank will have to raise rates slightly higher than expected as high inflation continues despite efforts. It is difficult to doubt this, especially after the recent report on the state of the labor market, where the unemployment rate has fallen to almost historical lows, and new jobs have been created and continue to be created. Nevertheless, lowering inflation is the top priority as many are now suffering from having to spend more money on necessities like gasoline and food.
The Fed also stressed that they will do everything possible to curb inflation even if their efforts hurt the economy. So far, this is not so noticeable yet as retail sales remain at a fairly high level. Fed officials predict that the unemployment rate could rise to 4.4% from the current level of 3.5%.
In addition to raising rates, the Fed is also getting rid of its bloated balance sheet. Mester thinks the process is going smoothly.
Talking about EUR/USD, quotes have reached the support level of 0.9680, but now there is a slight correction ahead of an important inflation report in the US. To resume growth, it is necessary to break above 0.9730, as only that will push the quotes to 0.9775 and 0.9810. Meanwhile, a break of 0.9680 will restore pressure on the pair and push it to 0.9640, 0.9590 and 0.9540.
As for GBP/USD, it continues to decline, so buyers are focused on defending the support level of 1.0930 and resistance level of 1.1050. Only the breakdown of the latter will open the path to 1.1120, 1.1180 and 1.1215. Meanwhile, a return of pressure and move under 1.0930 will push GBP/USD down to 1.0870 and 1.0800.
