FOREX Fundamental analysis on September 22, 2022
The Fed is purposefully implementing its position to fight inflation, despite the possibility of recession. But not all investors pay attention to the regulator's statements and hope that monetary authorities will not let stock indices crash. When this hope explodes, we see a rally in the S&P 500, which turns out to be a loss for risk-buying traders.
Yesterday the Fed unveiled a new vision for a neutral rate, at 4.4%. Most FOMC members believe the rate will rise to 4.25% by the end of the year, which is 115 basis points. In November, the regulator intends to implement its fourth consecutive monetary tightening by 75 basis points. The dollar has room to grow, which means yesterday's EUR/USD drop to 0.98 is not the limit.
Jerome Powell said that the current inflation rate is extremely damaging to the economy, so the Fed will actively fight it. A recession as a side effect is not ruled out, but the lack of price stability is a bigger problem than a potential economic slowdown.
The Fed will continue to tighten monetary policy and forecasts a rate of 4.6% at the end of 2023, not ruling out that in the middle of next year, its value could reach 5%.
The Fed's tough stance makes the dollar a leader in forex trading, which provides strong support for EUR/USD sellers.
The only negative thing about the Fed's action is the inversion of the yield curve. Two-year bond rates have far outpaced 10-year bonds, signaling a worsening economic outlook.
Yesterday's announcement by Russia of additional mobilization to reinforce the occupation troops in Ukraine has added to the negativity for the European currency. The rising cost of gas has knocked the euro down. EUR/USD is going down to the targets of 0.97 and 0.95. Hold Selling