Yesterday, the U.S. dollar fell sharply against most risk assets — and there were objective reasons for that.
During his speech, Federal Reserve Chair Jerome Powell indicated that the U.S. central bank intends to lower interest rates, even though the government shutdown is significantly limiting its ability to forecast the state of the economy.
Speaking Tuesday at the annual meeting of the National Association for Business Economics, Powell said that the economic outlook appeared to have remained unchanged since the policymakers' September meeting, when they cut interest rates and projected two more reductions this year.
Powell repeatedly pointed to weak hiring growth and noted that it could deteriorate further. "We're at a stage where a further decline in job openings could well start affecting the unemployment rate," Powell said during a Q&A session following his prepared remarks. "We've gone through an extraordinary period when everything slowed down all at once, and now it's time to take care of the labor market."
These comments came amid rising uncertainty about the global economic situation and growing concerns over a slowdown in U.S. economic growth. Investors viewed the Fed's readiness to ease monetary policy as a positive signal that could help sustain economic activity. However, many economists expressed concern about the lack of data due to the government shutdown, which complicates assessing the real state of the economy and making informed decisions.
Given the limited data available, the Fed will be forced to rely on indirect indicators and its own expert judgment when deciding on the future path of interest rates. This introduces additional risks related to possible forecasting errors and inadequate responses to the changing economic environment. Nevertheless, Powell's signal indicates that the Fed remains committed to maintaining stability and supporting U.S. economic growth, even under heightened uncertainty.
Expectations for a rate cut in October have remained virtually unchanged following Powell's remarks. Investors are pricing in nearly a 100% probability of a reduction, according to federal funds futures contracts.
Recall that the Fed's September rate cut to a target range of 4.00–4.25% was the first since December and followed a sharp summer slowdown in hiring. However, the unemployment rate remains relatively low at 4.3%.
The next Fed meeting is scheduled for October 28–29. Last month, the median forecast of the 19 Fed members projected two more rate cuts this year. However, nine officials believed one or fewer reductions would be appropriate.
As for the current EUR/USD technical picture, buyers now need to think about breaking above 1.1630. Only then can they target a test of 1.1660. From there, they could climb to 1.1690, though doing so without support from major players will be quite difficult. The most distant target is the 1.1715 high. If the trading instrument falls toward 1.1600, I expect some serious action from large buyers. If none appear, it would be wise to wait for an update of the 1.1570 low or open long positions from 1.1545.
As for GBP/USD, pound buyers need to break the nearest resistance at 1.3360. Only then can they aim for 1.3390, above which it will be difficult to advance. The most distant target will be the 1.3425 level. If the pair declines, the bears will try to regain control around 1.3330. If successful, a breakout of this range would deal a serious blow to the bulls' positions and push GBP/USD down to the 1.3290 low, with the potential to reach 1.3250.
