The U.S. dollar continues to lose ground against a number of risk assets as more Federal Reserve officials voice support for cutting interest rates at the upcoming meeting scheduled for the end of October this year.
Steven Miran, a so-called Trump appointee, stated in an interview yesterday that recent trade tensions have heightened uncertainty about growth prospects, making it more important for policymakers to cut interest rates quickly. "There are now more downside risks than there were a week ago, and I think we, as policymakers, have to acknowledge that," Miran said on Wednesday. According to him, the increased uncertainty surrounding trade policy between China and the U.S. has created new downside risks. "I would say that right now I want even lower rates than a week or a month ago," Miran added. "However, given the change in the balance of risks, I think it's even more important to move quickly toward a more neutral policy."
It is clear that many economists and market participants supported Miran's position, emphasizing that rate cuts are necessary to stimulate the economy amid growing uncertainty — a sentiment reflected in the weakening U.S. dollar. However, others voiced concerns about the potential negative consequences of sharp rate reductions. The risks of fueling inflation and devaluing the national currency are higher with such an approach. For this reason, a more balanced and gradual easing of monetary policy is needed — one that takes into account the current economic situation and potential threats.
It is worth recalling that companies operating within the semiconductor supply chain are preparing for a full-scale trade war after President Donald Trump last week threatened to impose additional 100% tariffs on China. This move followed restrictions introduced by the Asian nation on the export of rare earth metals, to which the U.S. responded by saying it would also consider controlling the sale of any critical software.
Federal Reserve Chair Jerome Powell, speaking this Tuesday, confirmed expectations for a second consecutive quarter-point rate cut at the upcoming meeting of officials later this month. Concerns that a slowdown in hiring could trigger a rise in unemployment are likely to influence the decision — even though inflation still remains above the Fed's 2% target.
As for the current EUR/USD technical picture, buyers now need to focus on breaking above 1.1680. Only that will allow them to aim for a test of 1.1715. From there, the pair could rise to 1.1745, though doing so without the support of major players will be quite challenging. The most distant target remains the 1.1765 high. In case of a decline, I expect significant buying activity only around 1.1644. If no support is found there, it would be better to wait for a retest of the 1.1614 low or consider opening long positions from 1.1580.
Regarding the GBP/USD technical picture, pound buyers need to break through the nearest resistance at 1.3450. Only then can they target 1.3480, above which further progress will be difficult. The most distant target is the 1.3525 level. If the pair declines, bears will attempt to regain control around 1.3400. If successful, a breakout below this range would seriously damage the bulls' positions and push GBP/USD down to 1.3370, with the potential to reach 1.3333.
