While the European currency and the British pound are trying to gain upside momentum to continue their bullish corrections initiated at the end of last week, Fed officials have shifted their focus from interest rates to inflation, particularly its target level.
Richmond Federal Reserve President Thomas Barkin stated that the US central bank could lose credibility if it were to consider changing its 2% inflation target before achieving that goal. "It's not like 2% is some magical unicorn of a number that we could never hit," he said at an event hosted by the Danville Pittsylvania County Chamber of Commerce in Danville, Virginia.
Barkin, who doesn't vote on monetary policy decisions this year, did not express his opinion on when he believes rate cuts might start. According to him, criteria that might allow for a reduction in rates include monitoring when inflation cools month to month and how consumer demand, which remains at a fairly high level, stabilizes.
A recent monthly survey of 68 economists conducted August 11-16 showed that no one expects the US central bank to cut rates until the second quarter of next year. This is three months later than the July estimate.
Barkin also noted that the greater-than-expected easing in inflation in June could signal that the US economy is heading for a "soft landing," returning to price stability without a dmamging recession.
At present, the regulator's preferred inflation gauge — the personal consumption expenditures index — added 3% in June from a year earlier, marking the smallest increase in over two years. This is well below last year's figure of 7% when Fed representatives began the most aggressive policy tightening campaign in a generation.
Some leading economists have repeatedly noted that central banks should not keep monetary policy so tight. Olivier Blanchard, former chief economist at the International Monetary Fund, believes that regulators should stop tightening policy, especially after inflation drops to 3%.
Harvard University Professor Jason Furman, who was chairman of the White House Council of Economic Advisers from 2013 to 2017, even called for the Federal Reserve to consider raising the inflation target.
Notably, last month, the Fed raised the key interest rate to a target range of 5.25% to 5.5%, the highest level in 22 years. Now, especially after the Jackson Hole symposium, the debate has shifted from how high rates need to go to how long they should remain elevated.
Analysis and trading tips for USD/JPY on August 29
Analysis and trading tips for GBP/USD on August 29
Analysis and trading tips for EUR/USD on August 29
From a technical point of view, the EUR/USD pair is trading in a sideways range. At the same time, a downtrend remains intact. To resume gains, the price needs to stay firm above 1.0805. In this case, the euro will have a chance of rising to 1.0835 and probably 1.0875. In a bear case scenario, major buyers are likely to regain control of the market only at around 1.0805 and 1.0770. In case of subdued trading activity, it would be a wise decision to wait for the price to hit a new low at 1.0740 or consider opening long positions from 1.0705.
Speaking of the GBP/USD pair, downward pressure has eased. The British pound is likely to gain value after bulls take control of the 1.2645 mark. A return to this area will push the price up to 1.2690 and even 1.2725. In the event of a decline, bears will make every effort to drag the price below 1.2610. If they succeed, the pair will most likely dip to the low of 1.2580 and then probably reach the 1.2550 mark.
