Today the U.S. Fed will cut interest rates for the third time in a row

[Ben Graham]

The U.S. dollar remains under pressure amid expectations that representatives of the Federal Reserve of the United States will today carry out their third consecutive interest-rate cut. However, many economists believe that the Fed may go into a wait-and-see mode after this cut — something that will be announced at the press conference following the meeting. Concerns over persistent inflation have led to a deep split within the central bank, which will likely prevent the Fed Chair Jerome Powell from announcing any further steps at the beginning of next year.

Such a turn of events may have a serious impact on the dollar exchange rate. Lowering interest rates usually weakens a currency — because it makes assets denominated in that currency less attractive to investors. However, if the Fed truly shifts to a more cautious stance, that could stabilize the dollar or even lead to its strengthening.

At the same time, the split inside the Fed over inflation and the labor market is adding uncertainty to the currency market. If some members of the Federal Open Market Committee continue to insist on a stricter policy, that could put pressure on Powell and limit his ability to ease further. That, in turn, could lead to unpredictable swings in the dollar in the short term. Therefore, traders should pay close attention to Powell's statements at the press conference to get a sense of the Fed's future plans. It is important to watch how he assesses the current inflation situation and which signals he gives regarding future monetary policy.

After two rate cuts this autumn and a total of 1.5 percentage points over the past 15 months, each further cut brings the Fed's base rate closer to a level that might stimulate economic activity — something many officials are trying to avoid. Several policymakers believe they have already reached a neutral rate, which neither stimulates nor restricts growth. Opposing opinions about how restrictive the Fed's rates actually are will likely lead to yet another division of views.

Powell's task of reaching a consensus will be even more difficult in the absence of new economic data — a consequence of the government shutdown that lasted all of October and much of November. Official labor-market data for November will be published only on December 16, and inflation data two days later. That leaves the Fed in a position where it has to balance on a fine line.

As for the current technical picture for EUR/USD, buyers now need to think about capturing the 1.1650 level. Only that will allow targeting a test of 1.1680. From there, one could climb toward 1.1705 — but doing so without support from major players will be quite difficult. The furthest target will be the 1.1725 high. In case the instrument falls only to around 1.1620, I expect some serious action from major buyers. If no one comes there, it might be wise to wait for a new low around 1.1590 or to open long positions starting from 1.1570.

As for the current technical picture for GBP/USD, pound buyers need to capture the nearest resistance at 1.3320. Only that will allow targeting 1.3350 — above which it will be quite difficult to break out. The most distant target will be around 1.3380. In case of a drop, bears will try to take control over 1.3285. If they succeed, a breakdown of the range would deal a serious blow to bulls' positions and push GBP/USD toward a minimum of 1.3260 with a prospect of moving to 1.3230.

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