The euro and the pound sterling dropped once again due to strong US data, after which market balance was restored. Traders are likely to take a pause now to prepare for the Federal Reserve's decision, which is set to keep interest rates at a 22-year high for the second consecutive meeting. However, many experts suppose that the committee will leave the door open for another rate hike in December of this year.
According to forecasts, the Federal Open Market Committee will maintain interest rates at its two-day meeting ending today in the range of 5.25% to 5.5%, a level reached in July of this year. The rate decision and the accompanying statement will be published shortly, followed by a press conference by Chairman Jerome Powell.
Recently, the Fed Chair indicated that he would prefer to wait as it was necessary to assess the impact of past rate hikes on the economy. The fact that the central bank is approaching the end of its rate-hiking campaign makes them even more cautious than before. Considering that inflation still significantly exceeds the committee's target of 2% and the pace of economic growth is close to a two-year high, policymakers are unlikely to rule out the possibility of raising rates again if necessary.
It is expected that while the pause may continue, this meeting will have a more hawkish tone than before, as the economy is performing well with inflation staying above the target level. The rise in US Treasury bond yields, which is tightening financial conditions, has prompted some members of the Fed to consider raising rates during the November meeting. Deutsche Bank AG, for example, believes that the recent spike in bond yields could be equivalent to a three-quarter-point rate hike by the Fed. This has forced even more hawkish FOMC members to indicate that they will be patient with policy changes.
Some experts believe that the Committee may change its stance, given the growth rate of 4.9% in the last quarter and the continued strong job growth. However, it is unlikely that any significant changes will be announced in the Fed's plans, especially amid the increased geopolitical tension caused by the outbreak of the war between Israel and Hamas.
Regarding the technical picture of EUR/USD, to regain control, buyers should stay above 1.0580. Doing so could pave the way to 1.0610. From that level, there is potential to reach 1.0640, but achieving this without support from major players will be quite challenging. The farthest target is located at 1.0670. If the pair declines, significant actions from major buyers could be seen around 1.0550. If no one steps in at that level, it might be wise to wait for a new low of 1.0520 or to consider going long from 1.0490.
Meanwhile, demand for the pound will rise if bulls manage to protect the support level of 1.2120. A further increase could be expected after gaining control over 1.2160. Regaining this range will bring back hope for a recovery towards 1.2200, after which a sharper rise to around 1.2230 can be anticipated. If the pair falls, bears will attempt to take control of 1.2120. If they succeed, a breakout of this range will affect bulls' positions, pushing GBP/USD down towards a low of 1.2090 with the potential to touch 1.2060.