EUR/USD and GBP/USD remained at their monthly highs after Chair Powell's second-day testimony in Congress. The Fed's chief sounded less hawkish, saying they would wait for fresh data on the labor market and inflation before they decided on raising interest rates in March.
Powell hinted at bigger and possibly faster rate hikes on Tuesday. In this light, no buying pressure on the greenback followed.
"We have not made any decision about the March meeting. We're not going to do that until we see the additional data. The larger point, though, is that we're not on a preset path and that we will be guided by the incoming data and the evolving outlook. But you've also said higher, longer," Powell said.
A change in Powell's stance to a more dovish one signals that policymakers may consider either a 0.50% or a 0.25% rate increase at a meeting on March 21-22. In fact, a 0.25% rake hike has already been priced in the quotes.
In addition, Powell touched upon the situation in the labor market. He said they already had some important data but needed to make sure the jobs market had started to cool down, referencing the latest ADP jobs report and the February employment statistics, which is due tomorrow.
Above all else, Fed policymakers are expected to release a fresh quarterly outlook at the meeting. According to their December forecast, interest rates should be at 5.1% this year. However, many Fed officials have already hinted that the target would be upwardly revised due to high inflation in the first six months of 2023.
Yesterday, investors increased their expectations that the Fed could raise interest rates by 0.50% at the March meeting. The regulator is now anticipated to lift rates to 5.7% this year instead of the previously forecast 5.5%. The Fed has been increasing interest rates aggressively for a year now. In February, it brought the benchmark rate to a range of 4.5% to 4.75%.
Speaking of EUR/USD, demand for the euro has been sluggish lately. So, a correction is likely to occur if the price stays above 1.0530 and rises above 1.0560. The more distant targets are seen at 1.0590 and 1.0620. In case the price drops, trading activity may increase around the 1.0530 area. If no activity is observed at this level, it will become possible to buy EUR/USD when the quotes update the 1.0500 low.
As for GBP/USD, the bulls will regain control over the market if the pair stays above 1.1820. In case of a breakout through 1.1870, the price may head toward 1.1920, targeting 1.1960. If the bears take the market under control above 1.1820, GBP/USD will plunge to the 1.1780 low after a breakout through this range, with the target at 1.1740.
