FX.co ★ Fed policymakers expect aggressive monetary policy to continue

In the run-up to Jerome Powell's speech at the symposium in Jackson Hole, Esther George, the president of the Fed Reserve Bank of Kansas City, stated that the FOMC has not yet increased interest rates to the level which would weigh down on the economy. She added that the Fed may have to take them above 4% for a time. "It's very important that we are clear in our communication about the destination we are headed," George said.

When asked about how high the Fed should raise interest rates, the Kansas City Fed president stated that the regulator had "more room to go". She also pushed back against market expectations of interest rate cuts in 2023. "I think we will have to hold – it could be over 4%. I don't think that's out of the question," Esther George said in an interview.

The Federal Reserve raised interest rates by 75 basis points at its previous two policy meetings, with further aggressive moves possible in the future. Fed policymakers get fresh data on consumer prices and employment – they believe the latest prints indicate that the rate hikes are cooling the overheated economy and are not excessively harmful at this point. George noted signs of demand cooling, but added that it has not yet fully affected inflationary pressure. "It's still very broad-based, and I think tells us there is more work to do," she said.

According to the latest data, consumer prices in the US increased by 8.5% year-over-year. The personal consumption expenditures price index, which is the Fed's preferred inflation gauge, rose by 6.8% year-over-year.

Earlier, the president of the Fed Reserve Bank of Atlanta Raphael Bostic said that he had not yet decided whether to back a 50 or 75 basis point increase at the FOMC meeting on September 20-21. "We all, as policymakers, understand that inflation is a big problem and is a challenge that we're going to do all that we can to handle."

On the technical side, the chances of EUR/USD dropping sharply remain quite high. To begin a new uptrend, EUR/USD would need to hold on to 1.0000 – this is the main goal for bulls right now. If EUR/USD moves above 1.0000, it would open the way towards 1.0030 and 1.0070 for the pair. Today's furthest goal is 1.0200, if Powell's statements turn out to be dovish. A breakout below 1.0000 would push the pair down to 0.9950, where bullish traders would become more active. If EUR/USD breaks below this level, it could then fall towards 0.9910 and 0.9860, which would open the way towards 0.9820.

The pound sterling recovered yesterday and could continue its upward correction. Bulls would need to hold on to 1.1800 – a breakout below this level would put an end to the pair's recovery and send it down towards 1.1760 and 1.1720. If GBP/USD breaks through this range, it could then drop towards 1.1680. To extend its upward momentum, the pair would need to settle above 1.1840, which would open the way towards 1.1880 and 1.1930.