21.03.202409:36 Forex Analysis & Reviews: Why Fed's policy decision hurts US dollar

The euro and pound sterling responded with some impressive gains yesterday after Federal Reserve policymakers said they were sticking to their stance on rate cuts despite troubles in bringing inflation down to the 2.0% target. Policymakers unanimously left the key federal funds rate in the range of 5.25% to 5.5%, the highest level since 2001.

Obviously, even the recent rise in monthly inflation has not affected Fed Chairman Jerome Powell's announcement that inflationary pressure will continue to ease and that it will be prudent to cut rates at some point this year. Speaking after the Fed's two-day meeting in Washington, Powell also said it would be a good idea to stall reducing the Fed's balance sheet.

Powell's main message was that the Fed's rhetoric had not changed despite the latest inflation data earlier this year.

Let me remind you that after good progress in taming inflation in the second half of 2023, Fed representatives began to discuss the timing and pace of lowering interest rates. However, another increase in price pressure at the beginning of the year somehow influenced the Fed's plans. However, Powell shrugged off the evidence of rising inflation. So, traders upgraded the forecast that the Federal Reserve will cut interest rates in June this year. This helped risky assets rally. Besides, the S&P 500 index closed at an all-time high again.

Following the policy meeting, only a slight majority of Fed policymakers said they still planned to cut interest rates three times in 2024. Nearly half of Fed officials would prefer two or fewer rate cuts in 2024, according to updated economic forecasts, as policymakers need more evidence of a downtrend in inflation. Fed officials now forecast higher core inflation, substantially stronger economic growth, and lower unemployment in 2024 than expected in December.

The Fed's post-meeting statement itself was almost identical to the one in January, which said cutting interest rates would not be appropriate until officials had more confidence that inflation was moving steadily toward its 2% target.

Regarding the current technical picture of EUR/USD, traders revived demand for the euro. Now buyers need to think about how to take the level of 1.0960. Only this will allow traders to execute the test of 1.0998. From there, the price may climb to 1.1035, but doing this without support from major players will be quite problematic. The farthest target will be a high of 1.1056. If the instrument declines only in the area of 1.0920, I expect some serious actions from large buyers. If there is no one there, it would be a good idea to wait for the low at 1.0880 to update or open long positions from 1.0820.

As for the current technical picture of GBP/USD, the bulls need to take the nearest resistance at 1.2820 to ensure the development of an upward trend. This will allow the bulls to target 1.2855, but it will be quite problematic to break through this level. The farthest target will be the area of 1.2890, after which we can predict a sharper surge of the pound sterling to 1.2930. If GBP/USD falls, the bears will try to take control of 1.2760. If this can be done, a breakout of the range will deal a serious blow to the positions of the bulls and push GBP/USD to a low of 1.2725 with the prospect of reaching 1.2680.