Both the euro and the pound sterling dropped amid the news that the outlook for the US GDP was upwardly revised to 2% on a yearly basis in the first quarter of 2023.
As stated in the report, the third GDP estimate for this period reflected an upward revision in exports and consumer spending. Household expenditures, the main driver of the US economy, grew by 4.2%, marking the highest level in nearly two years. This happened amid an upward revision in services spending.
Meanwhile, key inflation indicators closely monitored by the Federal Reserve were revised downwards. The personal consumption expenditure price index excluding food and energy rose by 4.9% in the first quarter. Another major measure of the country's economic state, Gross Domestic Income (GDI), showed a different result. Despite improvements compared to earlier estimates, GDI fell by 1.8% in the first quarter, marking the second consecutive decrease.
Immediately after the report was released, traders revised their interest rate expectations. It is now more likely that the Federal Reserve will raise rates two more times this year. Also, there is no longer any chance that the central bank will start lowering interest rates in 2023. With a probability of over 50%, swap rates pertaining to future Fed monetary policy meetings suggest that the US central bank will raise the target range for federal funds by 25 basis points in September and another 15 basis points by the end of the year.
Notably, in June, the Fed left the policy rate unchanged at 5-5.25% after 10 consecutive increases, which matched the majority of economists' forecasts. Nevertheless, the revised quarterly outlook for the economy and monetary policy showed that officials may raise rates two more times by the end of the year.
Yesterday, the published data showed that in May, pending home sales again slumped to the lowest level in a year as high mortgage rates and a lack of supply continue to impact sales.
According to the data from the National Association of Realtors, the indicator fell by 2.7% to 76.5%. The data was worse than expected. The association noted that the market continues to face obstacles as high borrowing costs and low supply are affecting sales. Many homeowners do not want to move.
The technical picture of EUR/USD is showing that buyers need to climb above 1.0900 and settle there to regain control over the level. This will allow them to reach 1.0940 and 1.1000. From this level, it will be possible to climb to 1.1060. However, it will be difficult to do this without positive data from the eurozone. If the pair declines, large buyers will become active only around 1.0855. Otherwise, it will be better to wait until the price touches the low of 1.0820 or to open long positions from 1.0800.
Meanwhile, demand for the pound sterling remains moderate, indicating further formation of a correction. One can count on the growth in the pair if buyers gain control over the level of 1.2660. A breakout of this range will strengthen hopes for further recovery to around 1.2710. After that, the pound sterling may surge to around 1.2755. If the pair drops, bears will try to take control over 1.2600. In the event of this, a breakout of this range will affect bulls' positions and push GBP/USD to a low of 1.2570 with the prospect of falling to 1.2530.