The euro resumed falling, as did the British pound. The statements of the representatives of the Federal Reserve, although not immediately, affected traders' appetite for risky assets. According to Lisa Cook, one of the governors of the Federal Reserve, the US Central Bank should take a cautious approach to lowering interest rates in order to give more time to slow inflation in some segments of the economy.
Notably, the Fed, at its meeting last week, left rates unchanged at the highest level seen in the last twenty years. Officials also maintained their forecast of three rate cuts this year, which was interpreted in favor of easing policy, especially after Fed Chairman Jerome Powell said that the recent inflation spike was of little concern to him. Now, nine out of 19 Fed officials expect two rate cuts or less in 2024, with two of those officials predicting no change in rates at all.
"The risks to achieving our employment and inflation goals are moving into better balance," Cook said during a speech at an economics lecture at Harvard University. "Nonetheless, fully restoring price stability may take a cautious approach to easing monetary policy over time."
Notably, the US economy continues to surprise analysts with its strength despite high borrowing costs. The labor market is also showing stability, with an average of 231,000 jobs created during the past six months. Last week, Fed officials revised their 2024 economic growth forecast to 2.1% from 1.4% in December.
Meanwhile, a key gauge of inflation for February beat economists' expectations, rising more than anticipated. That pushed back market expectations for the first rate cut, which investors now expect to come in June.
"The path of disinflation, as expected, has been bumpy and uneven, but a careful approach to further policy adjustments can ensure that inflation will return sustainably to 2 percent while striving to maintain the strong labor market," Cook said at Harvard University.
Obviously, as long as the economy is strong, GDP continues to grow, albeit not as vigorously, companies are hiring, and people have jobs, it is unlikely that the regulator will be in a hurry to make policy changes. This creates the main prerequisites for the medium-term strengthening of the US dollar against a number of risky assets.
As for the current technical picture of EUR/USD, demand for the euro decreased. Now, buyers need to think about taking the levels of 1.0835 and 1.0870. Only this will allow them to test 1.0905. From there, it is possible to climb to 1.0940, but it will be quite difficult to do this without support from the big players. The farthest target will be the high of 1.0980. In case of a decline, I expect any serious action from the big buyers to be around 1.0805. If there is no one there, it would be good to wait for an update of the 1.0760 low or open long positions from 1.0730.
As for the current technical picture of GBP/USD, bears are about to take full control over the market. Therefore, bulls need to take the nearest resistance at 1.2625. This will allow targeting 1.2665. It will be difficult to break through above that point. The farthest target is seen at 1.2710, after which we can talk about a sharper rise up to 1.2760. In case of a deeper fall of the pair, bears will try to take control of 1.2575. If they succeed, a breakdown of the range will deal a serious blow to the bulls' positions and push GBP/USD to the 1.2535 low with the prospect of sliding to 1.2500.
