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The intrigue surrounding the September meeting continues to grow. No one in the market doubts that the rate will be lowered at the next meeting, but at the same time, no one understands what will happen afterward. Let's briefly consider several "points of contention."
The first point of contention is the labor market. Data over the past three months has shown a sharp decline in the number of new jobs, indicating a significant "cooling." Based on this, the Federal Reserve is forced to consider easing monetary policy at upcoming meetings, as ensuring full employment is one of its mandates. Conclusion: the rate needs to be cut to prevent a sharper deterioration in the labor market.
The second point of contention is inflation. The latest consumer price report showed no signs of acceleration. Inflation stood at 2.7%, which, although above the Fed's target, is still a fairly good figure given the scale of Donald Trump's trade war. Jerome Powell has repeatedly voiced concerns that inflation could accelerate significantly, but the actual data did not confirm those fears. Many market participants began to doubt the Fed chair's judgment. However, the producer price index came in higher than expected, despite my not anticipating a strong figure. Producer prices rose by 0.9%, which is a very large increase, and next month we will likely see a comparable rise in the consumer price index. In this case, Powell's concerns would be justified. Conclusion: the rate should not be cut, as inflation is likely to grow even further.
The third point of contention is Trump's new tariffs. It is well known that the U.S. president continues to seek countries that are not yet subject to tariffs on exports to the U.S., leading to new duties emerging rapidly. Trump has also targeted specific industries. Import prices for copper, steel, aluminum, and automobiles in the U.S. already range from 25% to 50%. In the near future, Trump wants to introduce tariffs on pharmaceuticals and semiconductors. What other tariffs he may come up with over the next 3.5 years is anyone's guess. Since there is no final list of tariffs, and trade negotiations are ongoing with a large number of countries, it is impossible to forecast inflation for the next month, two, or three. If inflation cannot be predicted, it is equally impossible to make a sound decision on monetary policy. At the moment, inflation is barely rising, and the FOMC can afford to relax. But what if in a couple of months it starts accelerating rapidly? How would it then be controlled and brought back to 2%?
Based on my EUR/USD analysis, I conclude that the instrument continues building an upward trend segment. The wave pattern still depends entirely on news related to Trump's decisions and U.S. foreign policy. The targets for this trend segment may extend as far as the 1.25 level. Therefore, I continue to consider buying with targets near 1.1875, which corresponds to 161.8% Fibonacci, and higher. I assume that wave 4 has been completed. Accordingly, now is a good time for buying.
The wave pattern for GBP/USD remains unchanged. We are dealing with an upward, impulsive trend segment. Under Trump, markets may face many more shocks and reversals, which could significantly affect the wave pattern, but at present, the working scenario remains intact. The targets for the upward trend segment are now located near 1.4017. At the moment, I assume that the downward wave 4 has been completed. Therefore, I recommend buying with a target of 1.4017.
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