The US dollar was gradually regaining its positions after Thursday's unsuccessful attempt by buyers of risky assets to continue growing. Yes, investors took advantage of the resignation of Prime Minister Liz Truss, but this did not last long. Good statistics on the US labor market and the speech of the President of the Federal Reserve Bank of Philadelphia Patrick Harker - all this strengthened the confidence that the Fed will continue to act quite aggressively, actively fighting inflation.
Harker said on Thursday that the committee is likely to raise interest rates well above the planned 4% this year and will keep them at this level for quite some time to combat inflation. At the same time, the official did not rule out taking additional measures, if necessary. "We're going to keep raising rates for a while. Given our outright disappointment at the lack of progress in reducing inflation, I expect that by the end of the year we will exceed the 4% ceiling," Harker said during a speech at the Greater Vineland Chamber of Commerce in Vineland, New Jersey.
Policymakers are expected to commit to a fourth consecutive 75 basis point rate hike when they meet in early November this year. Many economists also expect that the Fed will go for a similar increase in December of this year, after which rates will reach their peak of about 5% in early 2023.
Harker, who does not vote on monetary policy decisions this year, said the Fed will base its decisions on economic data and will remain flexible on policy, tightening next year if necessary. "If we need to, we can continue tightening policy based on new data," Harker said. "But these are extreme measures, because we have to let the system work itself, which will take time."
Harker said he expected the unemployment rate to rise to 4.5% next year and then fall to 4% in 2024. According to the Ministry of Labor, it was 3.5% in September. As for inflation, Harker believes that the price index of personal consumption expenditures, the Fed's preferred indicator, will be about 6% this year, 4% next year and will drop to 2.5% only in 2024. "We really need to see a steady decline in a number of inflation indicators before we stop tightening monetary policy," he said.
The head of the Fed, Lisa Cook, in a separate speech, also said that high inflation would probably require a constant increase in rates, and then maintaining a restrictive policy for some time.
As for the technical picture of EURUSD, the bears actively piled on the euro and managed to return everything to the framework of the horizontal channel observed recently. To resume growth, it is necessary to return the pair above 0.9800, which will take the trading instrument to the area of 0.9840 and 0.9870. However, the upward prospects will depend entirely on the new US data and the decisions taken by the Fed. A breakthrough of 0.9760 will return pressure on the trading instrument and push the euro to a low of 0.9720, which will only worsen the situation of buyers of risky assets in the market. Having missed 0.9720, it will be possible to wait for the lows to update around 0.9680 and 0.9640.
As for the technical picture of GBPUSD, the growth and reaction to Truss' retirement quickly ended, which by the end of Thursday led the pound to the area of the opening level. Now bulls will focus on protecting the support of 1.1170 and the breakdown of the resistance of 1.1240, limiting the pair's growth potential. Only a breakthrough of 1.1240 will return the prospects for recovery to the 1.1290 area, after which it will be possible to talk about a sharper jerk of the pound up to the 1.1330 area – Thursday's high. We can talk about the trading instrument being under pressure again after the bears take control of 1.1170. This will deal a blow to the bulls' positions and completely negate the prospects of the bull market observed since September 28. A breakthrough of 1.1170 will push GBPUSD back to 1.1120 and 1.1070.
