The Dollar Remains Under Pressure

[Ben Graham]

Yesterday, New York Federal Reserve Bank President John Williams said that monetary policy is in a good position for next year following last week's interest rate cut, which led to another weakening of the U.S. dollar.

"Monetary policy is largely focused on balancing risks. To that end, the FOMC has shifted a moderately restrictive monetary policy toward a neutral stance," Williams said on Monday in prepared remarks for an event in Jersey City. "As a result of these actions, monetary policy is in a good position as we approach 2026."

Investors interpreted Williams's comments as a signal that the Fed does not intend to change its interest rate course in the near future, making the dollar less attractive compared with other currencies.

Many market participants disagree about the dollar's future trajectory. Some believe that solid U.S. economic growth will support the dollar in the long term. Others, however, think that Fed rate cuts and a growing budget deficit will put further pressure on the U.S. currency.

Disagreements among Fed policymakers are now also far more evident than before. Last week, Fed officials cut interest rates by a quarter of a percentage point. The third consecutive rate cut this year brought the Fed's benchmark rate to a target range of 3.5% to 3.75%. The decision prompted three dissenting votes from policymakers, including two regional Fed presidents who preferred to keep rates unchanged, and one from Fed Governor Steven Miran, who argued for a larger half-percentage-point cut.

In his remarks, Williams also said that U.S. economic growth next year is expected to accelerate to about 2.25%, up from a projected 1.5% in 2025, supported by fiscal policy, favorable financial conditions, and investment in artificial intelligence. He also noted that inflation is expected to decline to just below 2.5% next year before reaching the Fed's 2% target in 2027.

Answering questions, the head of the New York Fed noted that monetary policy is currently being adjusted in light of two key risks to achieving the central bank's core objectives: inflation that is too high or a labor market that is too weak. "This year, based on data and forecasts, we have adjusted interest rates downward in a way that we believe gives us a good chance of keeping these two competing types of risks roughly balanced," Williams said. "We cannot know exactly what will happen with trade policy, inflation, or the economy next year, but I think we are well prepared for it."

As for the current technical picture of EUR/USD, buyers now need to think about how to take the 1.1770 level. Only this will allow them to target a test of 1.1790. From there, a move up to 1.1820 is possible, but doing so without support from major players will be quite difficult. The most distant target would be the high at 1.1855. In the event of a decline, I expect any serious activity from large buyers only around the 1.1735 level. If no one shows up there, it would be better to wait for an update of the 1.1700 low or to open long positions from 1.1685.

As for the current technical picture of GBP/USD, pound buyers need to take the nearest resistance at 1.3395. Only this will allow them to target 1.3430, above which a breakout would be quite difficult. The most distant target would be the 1.3474 level. If the pair falls, bears will try to take control of 1.3355. If they succeed, a break of this range would deal a serious blow to bullish positions and push GBP/USD down to the 1.3320 low, with the prospect of a move toward 1.3285.

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