विदेशी मुद्रा विश्लेषण और समीक्षा: 03.10.2023

03.10.2023 12:55 PM

Powell's speech contains no surprises

While the euro and British pound were actively losing ground against the US dollar, the head of the Fed delivered another speech. "The Federal Reserve is focused on achieving a good labor market for a sustained period," Jerome Powell said at a roundtable event in York, Pennsylvania. "Lots of good things happen" in addition to real wage increases when a good labor market lasts for a sustained period of time, he added on Monday.

The head of the Fed also noted that there are expanded efforts to get more people into the workforce. One of these programs prepares prisoners for work a year before their release. "Actually it turns out that as an expansion gets longer and longer, more and more of the wage needs actually go to people at the lower end of the wage spectrum," Powell told workers, small business owners, and community leaders. However, in addition to his words, Powell made it clear that price stability is needed before increasing real wages. "Price stability is just a critical piece of bedrock for the overall economy over the years."

Despite the labor market-related comments, Powell ignored questions and did not leave remarks on the short-term interest rate prospects and the economy.

Notably, many representatives of the Federal Reserve are already advocating for a quarter-point rate hike this year. After last month's committee meeting, Federal Reserve Vice Chair for Supervision Michael Barr stated that much would depend on further economic data, although rates are now "at or very near" a sufficiently restrictive level.

Michelle Bowman also noted that multiple interest-rate hikes may be required to get inflation down to the central bank's goal even after data for August showed some of the slowest price increases since 2020.

At the end of last week, Federal Reserve Bank of New York President John Williams suggested that the US central bank may be done raising interest rates, though he said policymakers would keep them high for "some time" to bring inflation down to the central bank's 2% goal.

In any case, the more they talk about rate hikes, the more pressure the dollar puts on risk assets such as the euro and the British pound. In this regard, it is not surprising that these pairs are currently suffering heavy losses, especially after their recent corrections that allowed new sellers to enter the market at more attractive prices.

As for today's EUR/USD technical analysis, the euro continues to lose value. To regain control of the market, buyers need to break above the 1.0480 level. In this case, the euro will have a chance of rising to 1.0510 and probably 1.0540. However, the latter will be challenging without support from major players. In a bear case scenario, I expect major buyers to take action only at around 1.0440. If trading activity in this area is subdued, it would be a wise decision to wait for the price to dip to a new low at 1.0395 or go long at 1.0340.

Speaking of the GBP/USD pair, the British pound is back under pressure. Gains are possible only after the price consolidates above the 1.2080 level. In this case, one can expect a recovery to 1.2120 and probably 1.2160. In the event of a decline, bears will try to take control of 1.2030. Its breakout will bring the pound sterling down to 1.1970 and even 1.1930.

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