18.09.202309:48 Forex Analysis & Reviews: Fed sets ambitious goals

This week, the Federal Reserve will hold a meeting where policymakers will make another decision on interest rates. This decision may greatly influence risk assets, including the euro and the British pound.

The committee has long been divided into two camps. One camp believes it is justified to continue raising rates, while the other believes that the current rates are effectively curbing inflation growth and there is no need to put additional pressure on the economy.

In a recent interview, John Williams, the President of the Federal Reserve Bank of New York, stated that US monetary policy is in the right place. However, officials will need to examine the data more closely to decide on interest rate actions this week. He thinks that they have reached a very good level in terms of restrictive policy.

Recent data shows that US inflation increased, slightly exceeding economists' forecasts. Yet, core prices declined, putting the Federal Reserve in a challenging position.

The New York Fed's head also mentioned that the policy is producing a desired effect, resulting in more balanced demand and supply and easing inflation. He added that the Federal Reserve had already made significant moves by raising interest rates. However, he believes officials can adjust the policy if needed to ensure steady inflation reduction to the target level of 2%. He stated that they would need to keep an eye on the data, analyze it carefully, and ask themselves if the current measures were enough. "Do we need to maybe raise rates again to make sure that we're keeping that steady progress in terms of shrinking imbalances in the labor market and bring inflation back down," he stated.

Last meeting, the Federal Open Market Committee raised the base rate to a range of 5.25–5.5%, the highest in 22 years, after leaving it unchanged in June. While another rate hike this year is not ruled out, it is clear that officials intend to slow the pace of increases. This week's meeting might be the right time to do so.

Investors expect the Federal Reserve representatives to maintain the rates unchanged at the meeting on September 19-20.

Last month, Williams expressed his view that officials are close to reaching the peak rate. The main concern for them is determining how long they should maintain the restrictive policy. Other Federal Reserve representatives have expressed different opinions on rate prospects.

Regarding the technical picture of EUR/USD, bears are continuing to exert pressure on the euro today. To regain control, buyers should stay above 1.0680. Doing so could pave the way to 1.0720. From that level, there is potential to reach 1.0750, but achieving this without support from major players will be quite challenging. If the pair declines, significant actions from major buyers could be seen around 1.0650. If no one steps in at that level, it might be wise to wait for a new low of 1.0620 or to consider going long from 1.0580.

Meanwhile, the pound remains under pressure. A rise can only be expected after gaining control over 1.2420. Regaining this range will bring back hope for a recovery towards 1.2480, after which a sharper uptick to around 1.2510 can be anticipated. If the pair falls, bears will attempt to take control of 1.2380. If they succeed, a breakout of this range will affect bulls' positions, pushing GBP/USD down towards a low of 1.2340 with the potential to touch 1.2310.