FX.co ★ Fed Officials Prepare the Market for a Rate Cut

The euro and other risk assets received a strong boost after New York Federal Reserve Bank President John Williams said in an interview that next month's Fed monetary policy meeting could be pivotal in determining the regulator's medium-term direction. Thus, much like Powell last Friday, Williams hinted at the possibility of a rate change, though he did not specify what course of action he personally supports.

"I definitely think that every meeting, from my point of view, should be live," Williams said in Wednesday's interview. "At every meeting, we try to achieve a better balance of risks," he added, referring to the Fed's two priorities: maximum employment and stable prices.

At present, many investors are betting on lower borrowing costs at the September meeting after Fed Chair Jerome Powell stated last Friday that employment risks are rising and that a shift in the balance of risks could require an adjustment of policy stance.

Against the backdrop of uncertainty over inflation trends and U.S. growth prospects, the Fed's decision takes on particular importance. On one hand, maintaining tight monetary policy could slow economic growth and even trigger a recession. On the other, premature easing could spark a new wave of inflation and undermine confidence in the central bank. In these conditions, the market will closely watch for signals from members of the Federal Open Market Committee. Economic data to be released today and tomorrow, containing full details on growth and inflation, as well as figures due before the meeting, will also be scrutinized for clues about the Fed's future course. Most economists agree that the Fed will act cautiously and gradually, making data-driven decisions while taking into account potential consequences for the global economy.

Williams also stated that the current rate level is "moderately restrictive," meaning the Fed could cut interest rates while still maintaining some restrictive measures going forward. The New York Fed President added at the end of the interview that unemployment remains low, but some indicators, such as hiring, point to a gradual decline, while wage growth still reflects a resilient labor market.

As for the current technical picture of EUR/USD, buyers need to focus on taking the 1.1660 level. Only then will a move toward testing 1.1700 become possible. From there, the pair could advance to 1.1740, though doing so without support from large players will be difficult. The furthest target would be the 1.1780 high. In case of a decline, I expect significant buyer activity only near 1.1620. If no support is found there, it would be better to wait for a retest of the 1.1575 low or consider long entries from 1.1530.

As for the current technical picture of GBP/USD, pound buyers need to break the nearest resistance at 1.3525. Only then will a move toward 1.3560 be possible, though breaking above it will be quite challenging. The furthest target is the 1.3590 level. In the event of a decline, the bears will attempt to take control at 1.3485. If successful, a breakout of this range would deal a serious blow to the bulls and push GBP/USD down to the 1.3450 low, with prospects of extending the move to 1.3420.