Americans have been depleting their savings amassed during the COVID pandemic. This is the bottom line of the research of the Federal Reserve Bank of San Francisco.
The report said that American households' excess savings accumulated during the pandemic are likely to be depleted in the current quarter. On the one hand, this is even good, as it will eliminate the key problem of robust consumer spending, against which the Federal Reserve is conducting its fight because it spurs inflation. On the other hand, until that time it had a good effect on the US economy which continues to demonstrate stability this year, despite the highest interest rates over the past 20 years.
"Our updated estimates show households had less than $190 billion in total savings by June," San Francisco Fed researchers said in their report. "There is significant uncertainty about the future outlook. We assume that these savings are likely to come to an end and be depleted during the third quarter of 2023."
Earlier this year, the bank already published a study showing that as of March 2023, $500 billion in savings remained on household balance sheets after a peak of $2.1 trillion in August 2021. However, revisions of government data have since changed the picture.
The Bureau of Economic Analysis recently revised its previous estimates to show that household disposable income was lower and personal consumption higher than previously reported in Q4 2022 and Q1 2023. "The amendments reduced the personal savings figure by more than $50 billion. In addition, data for the second quarter shows that retail sales and household spending continued to grow at a fairly high pace, leading to even more depletion."
The redundant savings built up during the pandemic have helped the US economy withstand high interest rates, but everything comes to an end sooner or later. Let me remind you that following the July 25-26 policy meeting, central bank officials acknowledged the impact of high interest rates on the economy, agreeing that the GDP growth rates would be much lower in the near future. "Tight credit conditions are expected to lead to a slowdown in consumption growth in the second half of the year," the minutes said.
In any case, the slowdown in lending, which raises a lot of questions from the more dovish members of the FOMC, will have an adverse impact on future spending. If we add to all this the expected negative changes in the labor market, which sooner or later will occur due to the fault of high interest rates, then the economic slowdown will be in the cards in the 3rd and 4th quarters of this year. Amid such fundamentals, the recession scenario may be implemented next year. Such prospects frighten some policymakers of the Federal Reserve.
As for today's technical picture of EUR/USD, the euro remains under selling pressure. If the euro bulls want to return control, they need to push the price above 1.0890. This will allow a break back to 1.0920 and test 1.0950. Already from this level, it is possible to climb to 1.0980, but it will be quite problematic to do this without the support of large market players. If the trading instrument declines, I expect any serious actions from large buyers only in the area of 1.0860. If no one is there, it would be a good idea to wait until the low of 1.0840 is updated, or open long positions from 1.0810.
As for the technical picture of GBP/USD, the instrument is still trading within the sideways channel. You can count on strengthening only after the bulls manage to take control of 1.2725. The return of this area will cement hopes for a recovery to the area of 1.2750 and 1.2770. Once these levels are reached, it will be possible to talk about a sharper upward push of the pound to the area of 1.2840. If GBP/USD falls, the bears will try to take control of 1.2690. If they cope well, a break of this range would hit the bulls' positions and push GBP/USD to a low of 1.2660. Then, the door will be open to lower levels at around 1.2620.