Following the results of the first meeting of this year, which ended on Wednesday, the U.S. Federal Reserve decided to raise the key interest rate by 0.25%, which coincided with market expectations.
The Federal Reserve stressed that further interest rate hike is necessary since inflation remains high despite some easing in previous months: U.S. annual consumer inflation is currently at 6.5%, down from a 40-year peak of 9.1% reached in June.
Commenting on the decision and discussing the outlook for monetary policy, Fed Chairman Jerome Powell noted at a press conference following the meeting that "further rate hikes will be needed to achieve a sufficiently restrictive mood." In his view, "the labor market remains unbalanced," referring to the oversupply of labor demand, which sets the stage for further increases in wages for wage earners, which in turn is a prerequisite for a further run-up in consumer inflation. It, according to Powell, "remains well above our (the Fed) target," and while "inflation data over the past three months suggests a slowdown in the rate of growth, we need much more evidence to be confident that inflation is on a downward trajectory."
The dollar weakened significantly after the Fed's press conference, while U.S. stock indices rose significantly, and the positive dynamics of their futures continues today.
Today, two other major global central banks (UK and Eurozone) are holding their meetings.
The decision of the Bank of England will be published today at 12:00 GMT, and the ECB at 13:15 GMT.
In her speech at the World Economic Forum in Davos last month, ECB President Christine Lagarde said, "inflation expectations are not easing" and "the ECB will continue to raise rates." In her opinion, "inflation is too high," and "the ECB intends to bring it down to 2% in a timely manner."
Following last December's meeting, when the ECB's benchmark interest rate for loans was raised to 2.5% and deposits to 2%, the accompanying statement from bank management said that "interest rates will still need to increase significantly... in order to ensure that inflation returns to its medium-term target of 2% in a timely manner." Economists in December estimated that Eurozone inflation will be 6.3% in 2023 and 3.4% in 2024, still above the ECB's 2% target.
Other members of the ECB Governing Council also speak of the need for further monetary policy tightening. Bank of France Governor Francois Villeroy de Galhau said at the economic forum in Davos that the fight against high inflation in the EU is far from over, so he expects a further significant increase in interest rates in the coming months. Dutch central bank chief Klaas Knot also spoke about his vision of the situation and the need for further tightening of monetary policy, noting that the rate of adjustment of the value of 50.0 percentage points will be maintained and will not decrease, as some experts predicted.
Thus, following today's meeting, ECB leaders are widely expected to raise their base interest rate on loans to 3.0% and deposits to 2.5%.
At 13:45 GMT, the ECB press conference will begin, during which Lagarde will explain the decision and, probably, outline the Central Bank's plans for monetary policy for this year. If she again gives hawkish signals, then the euro could sharply strengthen. The soft tone of her statements will have a negative impact on the euro.
As of writing, the EUR/USD pair is trading near the 1.0985 mark, declining from the new local and 10-month high of 1.1032 reached at the beginning of today's trading day.
From a technical point of view, EUR/USD has reached an important long-term resistance level at 1.1000 and continues to develop upward dynamics towards the 1.1130 key resistance level, the breakdown of which will finally bring the pair into the long-term bull market zone.