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02.02.2023 04:26 PM
Jerome Powell tried his best to support the dollar, but the market turned out to be stronger

One event that the market has been anticipating for a very long time occurred yesterday evening. The market now only expects a 25 basis point rate hike after the most recent report on US inflation was released. We were certain that the market was accurate last night. It was even correct to retain strong demand for the euro and the pound in recent weeks given that the reduction in the rate hike phase can be seen as "bearish" for the dollar. Jerome Powell, the president of the Federal Reserve, gave a speech in the evening in addition to the rate hike, which I believe was much more significant.

First off, Jerome Powell pointed out that inflation is still at an undesirable level and is still substantially beyond the long-term target. He stated that the Federal Reserve still needs to do a lot of work to regain price stability. Given that inflation is on the decline, it was reasonable to raise the interest rate by 25 basis points. However, numerous additional rate increases may be necessary at the following sessions to fully realize the effects of tightening monetary policy This, in my opinion, is Powell's first crucial utterance, demonstrating that the growth will go without interruption. Let me remind you that at the March meeting, many analysts questioned whether the FOMC was ready to hike the rate.

In several nations across the globe, inflation has recently displayed inconsistent values. For instance, we recently heard that the EU's core inflation rate, which excludes the cost of energy and food, did not go down in January. This could imply that the primary inflation indicators are declining as a result of the recent drop in the price of oil and gas on the global market. Since the United States and the EU are also affected by this issue, a comparable image may be seen there as well. Powell's willingness to keep tightening is reasonable in light of this.

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In light of its underlying indicator, the Fed president stated yesterday that additional evidence of decreasing inflation is required. He added that a protracted time during which the rate would remain at its current level will start when the rate-hike cycle is over. Powell stated at a press conference that "the good news is that inflation is dropping without hurting the job market." As it turned out from Powell's speech, the likelihood of multiple additional interest rate hikes was discussed at the meeting; the possibility of pausing for a bit before resuming tightening was not examined.

Powell, in my opinion, did all possible yesterday to raise interest in US currency. Despite being less harsh than in the past three months, his address was full of "hawkish" comments. However, despite these statements, the dollar did not increase.

I draw the conclusion that the construction of an upward trend section is nearly finished based on the analysis. As a result, sales with targets close to the predicted level of 1.0350, or 261.8% Fibonacci, can now be taken into consideration. The potential for complicating and extending the upward section of the trend remains quite strong, as does the likelihood of this happening. The market will be ready to finish the wave e when a move to break through the 1.1157 level fails.

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The development of a new downward trend segment is predicated on the wave pattern of the pound/dollar instrument. Currently, sales with targets at the level of 1.1508, or 50.0% Fibonacci, might be taken into account. You can set a stop loss order above the peaks of waves e and b. As it does for the euro, the upward section of the trend may still assume a longer form than it does currently. Sales should be handled with caution because the pound tends to increase.

Chin Zhao,
Analytical expert of InstaForex
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